Saudi Aramco plans return to debt market with multi-tranche bond deal

Oil tanks at an oil processing facility of Saudi Aramco, a Saudi state-owned oil and gas company, at the Abqaiq oilfield.

Stanislav Krasilnikov | TASS via Getty Images

Saudi Aramco said on Monday it had hired banks for a multi-tranche U.S. dollar-denominated bond issue as the world’s biggest oil company sought cash amid falling oil prices.

Gulf issuers show no sign of abating from this year’s issuance blitz in international debt markets as they scramble to shore up finances hit by lower oil prices and the coronavirus crisis.

So far this year, emissions from the region have already hit the 2019 record, once again surpassing $100 billion.

Goldman Sachs, City, HSBC, JP Morgan, Morgan Stanley and NCB Capital were hired to organize investor calls starting Monday ahead of the scheduled transaction, Aramco said in a stock market filing.

Other banks involved in the deal include BNP Paribas, BOC International, BofA Securities, Agricultural credit, First Bank of Abu Dhabi, Mizuho, MUFG, SMBC Nikko and Societe Generale, showed a document issued by one of the banks on the agreement.

The oil giant, which debuted in international debt markets last year by raising $12 billion after receiving more than $100 billion in orders, did not specify the size of the latest issuance. proposed.

It provided for a reference multi-tranche offer consisting of three-, five-, 10-, 30- and/or 50-year tranches, subject to market conditions, the document specifies. Benchmark bonds are typically at least $500 million per tranche.

“The backdrop is favourable,” a debt banker said of the deal, citing a $1 billion Islamic bond issue last week by Dubai Islamic Bank, which achieved record yields.

Aramco needs cash to pay $37.5 billion in dividends for the second half of 2020 and to fund its $69.1 billion acquisition of 70% of Saudi Basic Industries (SABIC), paid in installments through 2028 It raised a $10 billion loan this year.

“Any potential bond offering would be part of the company’s overall financing strategy in the normal course of business and subject to market conditions,” Aramco told Reuters in a statement emailed when asked. asked him for details of the problem.

Saudi risk

Hasnain Malik, Head of Equity Strategy at Tellimer, said: “In a world looking for yield, demand should not be lacking. But persistently low oil prices and the threat to long-term liquidity generation should be reflected in prices.

Ratings agency Fitch last week revised its outlook on Aramco to stable from negative, a day after a similar action on the Saudi ruler, which owns a majority stake in the oil giant. Government finances are heavily dependent on the hydrocarbon industry.

“This reflects the influence that the state exerts on the company through strategic direction, taxation and dividends, as well as regulating the level of production in accordance with OPEC commitments,” Fitch said.

Aramco’s outstanding U.S. dollar-denominated bonds due 2029 were trading at 2.05% on Monday, a slightly higher yield than Saudi government securities with a similar maturity, according to Refinitiv data.

A bond prospectus, seen by Reuters, detailed risks for investors, including the Covid-19 virus and Saudi government decisions regarding oil production and spare capacity.

“Costs incurred by Saudi Aramco in complying with such decisions may not maximize returns for Saudi Aramco,” the prospectus said, citing possible restrictions on its oil production.

Aramco reported a 44.6% drop in third-quarter net profit this month as the pandemic continued to stifle demand and weigh on crude prices.

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