Saudi firms will cut dividends to fund $1.3 trillion investments

Saudi Arabia’s biggest listed companies have agreed to reduce their dividends and redirect the money into the local economy as the Crown Prince looks to get his economic overhaul plan back on track.

Twenty-four firms including oil giant Saudi Aramco, Saudi Basic Industries Corp., Almarai Co., Saudi Telecom Co. and National Shipping Co. have agreed to join the plan, contributing SAR5 trillion ($1.33 trillion) of domestic capital spending over the next 10 years, Crown Prince Mohammed bin Salman told journalists on Tuesday.

The companies will be offered incentives from the government in exchange for participating, including subsidies, he said. The prince added that the government will stick with a pledge to protect dividend payments to minority shareholders in Aramco.

“What we’re trying to create is growth in Saudi Arabia: growth in GDP, more jobs in Saudi Arabia, more income to the Saudi government and a better life for Saudis,” the Prince said.

The SAR5 trillion from private firms is part of a SAR27 trillion plan Prince Mohammed announced on Tuesday, outlining a slew of planned investments over the next 10 years. Central government spending will account for around SAR10 trillion over the same period, while the sovereign wealth fund previously announced that it plans to invest SAR3 trillion on top of that, he said.

Another SAR4 trillion from the 10-year plan will come from private investments in a not-yet-announced national investment strategy, while the SAR5 trillion will come from ordinary consumer spending.

Diversify the Economy
The announcement underlined the extent to which the Prince’s focus is turning domestic as he tries to diversify the economy of the world’s largest oil exporter and create enough jobs for the kingdom’s youthful population. It also showed that the government is counting on the struggling private sector to boost growth – which has long depended primarily on state spending.

The new plan comes after the coronavirus pandemic and oil market turmoil created a double crisis for Saudi Arabia, setting back the 35-year-old de facto ruler’s goals to boost the non-oil economy and slash citizen unemployment.

“It’s definitely a squeeze on businesses, to mandate domestic investment,” said Karen Young, resident scholar at the American Enterprise Institute in Washington, D.C. “He’s seeing multiple generations of shared savings as his and his generation’s to spend, and so the gamble is that he’s going to be able to deploy this and jumpstart a post-oil era.”

The dividend plan will not harm the shareholders of the companies involved because instead of getting a dividend in cash they will get growth in the stock market spurred by the domestic spending plans, Prince Mohammed said. The government is still negotiating with other companies to join the programme, but around 60 per cent of the SAR5 trillion will come from Aramco and SABIC alone.

“The dividend of the stakeholder for Aramco is going to be stable,” he said. “We promised them that, and we are going to keep our promise.”

‘Going to Sell’
In return for the firms’ participation, “we’re going to give them subsidies, we’re going to change the laws as they wish and we’re going to do their wish list to make that happen,” he added.

Prince Mohammed also said that the kingdom’s sovereign wealth vehicle, the Public Investment Fund, would look to sell off some of its local holdings in order to support new investments.

“We shouldn’t keep our share forever, whatever mature investment we have, we’re going to sell,” the Crown Prince said. “So if you own 70 per cent of a company then that’s wrong – PIF would own 30 per cent of that company and they will sell that 40 per cent.”

Last year, the PIF completed the sale of its 70 per cent stake in SABIC to Aramco, in a deal that raised about $70bn. The PIF holds large stakes in many Saudi companies, most notable Saudi Telecom Co and National Commercial Bank. The Prince didn’t comment on any specific asset sales the PIF was planning.

Overall, 90 per cent of the SAR27 trillion plan will come from within Saudi Arabia: the government, the private sector, and the people, he said. Around SAR2 trillion is expected to come from foreign investment, including regional investors as well as Western and Asian investors. That would translate to more than $50bn of foreign investment per year, compared to $4.6bn in 2019.

“Yes, it’s ambitious. Yes we’ve said a lot of ambitious things in the past four years,” said the Crown Prince.

“I believe we can deliver that in the next 10 years,” he added.