Saudi Aramco floats dollar bond sale to boost finances
The world’s largest oil company will utilise the funds to pay dividends and finance its purchase of 70% stake in SABIC
Saudi Aramco has begun marketing a five-tranche US dollar-denominated bond sale on Tuesday as the world’s largest oil producer seeks to boost its finances.
The move is part of a rush at the international debt markets by Gulf issuers seeking to plug finances hit by the pandemic and weak oil prices, which has pushed regional issuance past last year’s record to surpass $100 billion again.
Aramco will utilise the funds to pay dividends of $37.5 billion for the second half of 2020 and finance its $69.1 billion purchase of 70% stake in Saudi Basic Industries (SABIC).
The company has hired banks for its latest bond issue. Citi, Goldman Sachs, HSBC, Jpmorgan, Morgan Stanley and NCB Capital were hired as active book runners, a document issued by one of the banks on the deal showed.
Other banks involved in the deal include BNP Paribas, BOC International, Bofa Securities, Credit Agricole, First Abu Dhabi Bank, Mizuho, MUFG, SMBC Nikko and Societe Generale, the document showed.
The oil giant made its debut in the international debt markets last year by raising $12 billion ater receiving more than $100 billion in orders.
It planned a benchmark multi-tranche offering consisting of tranches for three, five, 10, 30 and/or 50 years, subject to market conditions, a document said. Benchmark bonds are generally at least $500 million per tranche.
“Any potential bond offering would be part of the company’s overall funding strategy within its normal course of business and subject to market conditions,” Aramco told Reuters in an emailed statement when asked for details about the issue. “The backdrop is supportive,” said a debt banker on the deal.
It raised a loan of $10 billion this year, to be paid by installments until 2028, to back that acquisition.
Aramco gave initial price guidance of around 140 basis points (bps) over US Treasuries (UST) for a three-year tranche, around 155 bps over UST for five-year bonds, around 175 bps over UST for 10-year notes, around 205 bps over UST for a 30-year tranche and around 230 bps over UST for 50-year bonds, the document showed.
There has been no official indication of size but Aramco’s second foray into the international debt markets is expected to be sizeable, ater raising $12 billion in its debut bond issuance last year.
“An issuer like this doesn’t usually print tranches smaller than $1.5 billion or thereabouts,” a banker on the deal said.
Last year, Aramco priced inside the sovereign of Saudi Arabia’s curve, but financial sources expect its new bonds to be around 10 bps wider.
“The Saudi government is the majority shareholder in Aramco and can decide where to allocate Aramco capital and how much to leverage its balance sheet,” said Hasnain Malik, head of equity strategy at Tellimer.
The Saudi government owns 98.18% of Aramco following the oil giant’s blockbuster initial public offering (IPO) a year ago.
Aramco’s outstanding US dollar-denominated bonds due in 2029 were trading at 2.1% on Monday. Its bonds due in 2049 were both trading at 3.2%.
Ratings agency Fitch revised its outlook last week on Aramco to negative from stable, a day ater similar action on the sovereign, the finances of which are heavily reliant on the hydrocarbon industry.
Meanwhile, oil prices edged up on Tuesday morning on expectations OPEC and its allies will extend Oil production cuts for at least three months, while sentiment was bolstered by news of another promising coronavirus vaccine.
Brent crude futures for January rose 18 cents, or 0.4%, to $44.00 a barrel and US West Texas Intermediate crude for December added 8 cents, or 0.2%, to $41.42 a barrel.
Equity markets gained on hopes of a quicker economic recovery ater Moderna said its experimental COVID-19 vaccine was 94.5% effective in preventing infection based on interim late-state data.
“Moderna’s vaccine announcement had probably its largest effect on Oil out of the main asset classes,” said Jeffrey Halley, senior market analyst at OANDA, adding that positive vaccine news has “almost certainly put a long-term floor under Oil prices”.
Moderna’s results came ater Pfizer reported last week that its vaccine was more than 90% effective.
“If we judge economic recovery, particularly through the lens of oil markets; with multiple high efficacy vaccines in the pipeline, there is good chance mobility will return close to prepandemic levels later in 2021,” said Stephen Innes, chief global markets strategist at axi in a note.