Saudi Aramco Explores Supply Chain Finance Initiative

Oil giant Saudi Arabian Oil Co., often referred to as Saudi Aramco, a shortened version of its former name, is trying to set up a supply chain finance network, The Wall Street Journal (WSJ) reported.

The move to arrange financing for billions of dollars a month in payments to suppliers would serve as a form of cash advance, according to WSJ. A company can use supply chain financing to spread out payments to suppliers without borrowing in a manner that would add debt to its balance sheet.

Aramco is the third-most profitable company in the world behind Apple and Microsoft and recently requested the financing in letters to bankers, WSJ reported.

According to WSJ: “A spokesperson for Aramco confirmed it is exploring a supply chain finance initiative, saying it wants to improve the experience of its vendors. The process is at an early stage, and the company hasn’t selected banks, the spokesperson said.”

Saudi Aramco has more than 10,000 suppliers in its home country, WSJ reported, citing an unnamed source. The Saudi government, which owns much of the oil company, has pressed for faster payment to those companies to stimulate the domestic economy.

The new financing system would be used to cover between $500 million and $2 billion in supplier payments each month, WSJ reported.

The report stated that although it isn’t known which banks might participate in a system Saudi Aramco is seeking, the company hopes to assemble a group of banks in the Middle East, Asia and Western countries.

Saudi Aramco’s move comes as some companies in the oil business have been squeezed for cash due to persistent low prices for crude oil, according to WSJ, and that includes Saudi Aramco.

Earlier this month, WSJ reported, Saudi Aramco agreed to sell a minority stake in a new pipeline business. In November, it raised $8 billion through a bond sale.