Saudi Aramco's share transfer to PIF is 'credit positive', Moody's says

Aramco Trading Company signs an agreement with Egypt’s Red Sea National Petrochemicals Company for a long-term crude oil supply for its planned refinery complex

Saudi Aramco's oil terminal in Abqaiq, Saudi Arabia. Reuters.

Saudi Arabia's transfer of 4 per cent of its ownership in Saudi Aramco to the Public Investment Fund is a credit-positive move for the kingdom's sovereign wealth fund, Moody's Investors Service has said.

The share transfer will increase the fund's assets under management, further improve its sector diversification and add an asset that regularly pays dividends to its portfolio, the ratings agency said.

"The transfer reflects the fund’s importance to Saudi Arabia and its key role in implementing the country's Vision 2030," Moody's said, referring to Crown Prince Mohammed bin Salman's plans to overhaul the economy and reduce its reliance on oil.

The share transfer announced on February 13 added about $80 billion to PIF's assets under management, based on Saudi Aramco's market capitalisation on Sunday. PIF is aiming to grow assets under management to about $1.07 trillion by the end of 2025.

Earlier this month, the sovereign wealth fund received the fifth-highest credit rating of 'A1' from Moody’s, reflecting its “very strong” fundamental credit strengths and the "very high" likelihood of extraordinary support being provided to PIF from the kingdom if ever required. Moody's also lauded the fund's "low exposure to environmental and social risks" and "little exposure to the energy and resources sector".

The share transfer will also increase dividends that the PIF receives, "which in turn will improve its interest coverage ratio", said Moody's.

"Saudi Aramco is a regular dividend payer and has had a strong commitment to pay at least $75bn in annual dividends, which will result in additional dividend income of 11.25bn riyals per year," said Moody's in a research note.

Since a change in oversight in 2015 to the Council of Economic and Development Affairs from the Ministry of Finance, the fund has received regular asset transfers from the government of Saudi Arabia, and Moody's said it expects additional contributions in the future.

The multibillion dollar stake in the world’s largest oil exporter will increase PIF's exposure to the energy sector, Moody's said. The fund's other assets include electric car-maker Lucid and the planned futuristic city Neom, which aims to run on renewable energy.

"The share transfer increases PIF's exposure to the oil and gas sector, though this exposure will decrease as it continues to redeem its holdings of Saudi Aramco promissory notes," Moody's said.

PIF, which has about $480 billion in assets under management, is the main vehicle for growing Saudi Arabia's investments domestically and abroad as Crown Prince Mohammed, who is also the chairman of the sovereign wealth fund, seeks to implement economic and social reforms.

Aramco has said it aims to have net-zero carbon emissions by the middle of the century, in line with the kingdom's own plans to decarbonise by 2060.

Separately on Wednesday, Aramco Trading Company signed an agreement with Egypt’s Red Sea National Petrochemicals Company for long-term crude oil supply for its planned refinery complex, with a provision for offtake of refined and petrochemical products.

Under the agreement, Aramco Trading will supply 100,000 barrels per day of Arabian Crude to its Egyptian company's refining and petrochemical complex, which is expected to be built at the Suez Canal Economic Zone in Ain Sokhna, according to a statement by the Dhahran-based company.

The pact is in line with "Saudi Aramco’s strategy to maximise liquid-to-chemical conversion," said Mohammed Al Qahtani, Aramco Trading Company's chairman.

"We are committed to supporting the continued development of oil and gas resources in Egypt, a country which is capable of delivering technologically advanced projects of significant scale to meet the growing energy demands of the nation and the region."

The Red Sea National Petrochemicals Company was established to meet the needs of the local market for refined and petrochemical products as well as to create export opportunities.

The planned petrochemical refinery is expected to have a liquid-to-chemical conversion rate of about 60 per cent to 70 per cent, which is the main pillar in Egypt's Ministry of Petroleum and Mineral Resource national transformation programme, according to the statement.

Aramco Trading Company is the arm of Saudi Aramco that trades crude, refined products, LNG and LPG, blending components, bulk petrochemicals and polyolefins.

The company has storage and blending centres in major trading hubs, customising product specifications to meet consumer demand.

Aramco Trading Company now has four global offices in Dhahran, Fujairah, London, and Singapore to support this integration model. The company is a trading partner for refiners, shipping companies, financial institutions, end users, and others.