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Saudi’s private sector companies to cut dividends and help fund $1.3 trn in local investments

Saudi Arabia’s biggest listed companies have agreed to reduce their dividends and redirect the money into the local economy

The companies will be offered incentives from the government in exchange for participating Central government spending will account for around 10 trillion riyals ($2.7 trn) Some 24 companies, most of them being publicly listed firms, would invest $533bn by 2025

Saudi Arabia’s biggest listed companies have agreed to reduce their dividends and redirect the money into the local economy.

Twenty-four firms including oil giant Saudi ARAMCO, SABIC, Almarai, Saudi Telecom, and National Shipping Co. have agreed to join the plan, contributing 5 trillion riyals ($1.33 trillion) of domestic capital spending over the next 10 years, Saudi Crown Prince Mohammed bin Salman (MBS) said on Tuesday, March 30, 2021.

The companies will be offered incentives from the government in exchange for participating, including subsidies, MBS said. 

 “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 Saudi crown prince said.

The deal from private firms is part of a 27 trillion-riyal ($7.2 trn) plan MBS announced Tuesday to be spent over the same period. 

Central government spending will account for around 10 trillion riyals ($2.7 trn), while the sovereign wealth fund previously announced that it plans to invest 3 trillion riyals ($0.81 trn) on top of that, he said.

Another 4 trillion riyals ($1.08 trn) from the 10-year plan will come from private investments in a not-yet-announced national investment strategy, while the final 5 trillion riyals ($1.35 trn) will come from ordinary consumer spending.

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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, MBS said. 

The government is still negotiating with other companies to join the program, but around 60% of the 5 trillion riyals will come from ARAMCO and SABIC alone.

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

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.

Overall, 90% of the 27 trn-riyal plan will come from within Saudi Arabia: the government, the private sector, and the people, he said. 

Around 2 trn riyals are expected to come from foreign investment, including regional investors as well as Western and Asian investors. That would translate to more than $50 billion of foreign investment per year, compared to $4.6 bn in 2019.

“The new Shareek (Partner) program will help the private sector create hundreds of thousands of new jobs and will boost the contribution of the private sector to [gross domestic product] by up to 65% by the end of the decade,” the prince said.

Finance Minister Mohammed al-Jadaan told the Reuters news agency that 24 companies, most of them being publicly listed firms, would invest $533bn by 2025 and another $800bn by 2030. PIF is a shareholder in most of them, he added.

Jadaan said the state would offer support, including soft loans from Saudi development institutions and tax incentives at free zones, in line with World Trade Organization guidelines.

The Saudi crown prince said the government planned to offload its shares in companies in the coming years and to launch initial public offers (IPOs) for projects it is launching.

“We will recycle the money. We shouldn’t keep our shares forever. Whatever mature investment we have we have to IPO. So for example if you own 70 percent of a company, PIF should maintain majority at 30 percent and sell 40 percent,” he told journalists.

The Saudi crown prince said that PIF is working with other sovereign wealth funds in the region on a fund called “Invest In Saudi” that would be worth between 500 billion riyals ($133bn) to one trillion riyals ($267bn).

PIF is backing domestic mega-projects such as the flagship tourism project at the Red Sea, planned $500bn Neom economic zone, and the entertainment hub at Qiddya.