DUBAI- Saudi oil giant Aramco will likely need to transfer significant amounts of money to the Saudi government and the sovereign fund, Public Investment Fund (PIF), as Saudi Arabia puts its finances in order after the coronavirus slump, Bank of America said.
Aramco - which listed in 2019 in a record $29.4 billion share sale - is likely to "do the heavy lifting" to boost state coffers and support mega-projects spearheaded by the PIF, BofA said in a research note.
"The medium-term fiscal adjustment relies on the strength of Saudi Aramco's balance sheet through sustained high transfers to the sovereign and to the PIF."
Saudi Arabia increased non-oil revenue last year. Aramco, in which the government still owns a 98.2% stake, still accounted for more than half its total income.
The world's top oil exporter aims to diversify its revenue away from crude and create jobs in new economic sectors and the PIF is Crown Prince Mohammed bin Salman's vehicle of choice for transforming the economy.
"Saudi authorities appear on course to deliver a remarkable medium-term fiscal adjustment with profound economic and cross-asset implications," BofA said.
PIF's assets - now at $400 billion - could approach $500 billion by 2028 but Saudi Arabia's investment plans may require even more funding, BofA said.
Aramco's profits plummeted last year as the pandemic hit oil demand, but the company stuck to a promised $75 billion annual dividend, the majority of which goes to the government.
"'Excess' Aramco dividends could help narrow the fiscal deficit by 2.1 ppt (percentage points) of GDP over 2020-23, while indirectly funding the shift of capex off-budget to the PIF," BofA said.
(Reporting by Davide Barbuscia; editing by Jason Neely) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: firstname.lastname@example.org))