International Business: Aramco gets whopping $100 billion demand for landmark bond

Lloyd Doyle
April 12, 2019

The bond sale will raise money to finance the kingdom's economic agenda after an initial public offering of Aramco was postponed past year until at least 2021.

The demand prompted the world's largest oil firm to market the six-part deal - which will price on Tuesday and could see Aramco raise more than $10 billion - with a smaller than expected premium to the Saudi government that owns it.

Given the opportunity investors have for a more direct claim on the oil company's assets than they do with the sovereign, and the issuer's lack of debt, the size of the order book will nearly certainly build. Both Fitch Ratings and Moody's Investors Service assigned Aramco the fifth-highest investment-grade rating, the same as Saudi sovereign debt, but lower than oil majors Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp. (Aramco) has received up to $100 billion in orders for its first-ever bond offering in a sale closing April 9 in London, Bloomberg reported April 8.

"Aramco is more transparent, has stronger credit metrics and is on an improving ESG (environmental, social and governance) trajectory whereas the government is more complex", said Mohieddine Kronfol, chief investment officer of Global Sukuk and MENA Fixed Income at Franklin Templeton Investments.

"The link between the two however is understandably very strong", he said.

The bond sale will help Saudi Aramco, recently revealed to be the world's most profitable company with $111bn net profit in 2018, finance its acquisition of the Public Investment Fund's (PIF) 70% stake in Saudi chemicals giant SABIC.

Having made core earnings of $224 billion previous year and with $86 billion in free cash flow at the end of 2018, Aramco does not need to borrow.

Saudi Aramco has received more than $50bn in bids for its debut worldwide bond sale, which had been expected to be in the $10bn region, sources familiar with the matter said.

"They are clearly trying to price it (the bond) off existing AA corporates in this world, so people are looking at curves like Shell, Total, Exxon but also technology giants like Apple", said Buchet.

The bond will create a USA dollar curve for the company, and also finance the US$69bn acquisition of 70% of Saudi Basic Industries Corp (SABIC), a petrochemical company from the kingdom's wealth fund.

Pension funds and insurance companies in the United States and Taiwan are traditionally interested in investing in long-dated securities to match their own long-term commitments.

Aramco past year postponed a planned initial public offering to 2021.

The state-owned oil giant is marketing a US dollar-denominated debt issue split into six tranches with maturities ranging from three to 30 years. The offering also includes a three-year floating rate bond.

Other reports by Iphone Fresh

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