Aramco props up slumping Gulf energy debt market

Dubai, UAE - Gulf Arab energy companies took on marginally more total debt in 2019 compared with the previous year, but the increase was skewed by a surge in borrowing by Saudi Aramco and its refining joint venture.

Excluding new Saudi Arabian loans and bonds of US$15.6bn, energy-companies’ debt in the oil-rich region tumbled by twothirds, according to data compiled by Bloomberg.

Lending was particularly sluggish in the second half of 2019, when these companies borrowed just US$5.5bn - the lowest level in three years. Aramco’s majority-owned Satorp refinery venture alone accounted for US$3.6bn of all second-half debt.

Energy companies in the region may need to take on more debt if oil prices keep falling, said Rory Fyfe, chief economist at UK-based MENA Advisors. Benchmark Brent crude slid about 10 per cent last year to an average of about US$64 a barrel, and growth in oil demand shows signs of faltering. Access to cheap financing could also stimulate borrowing.

“Gulf issuers are very opportunistic, and if we see lower global rates, we could see oil companies coming back to the market,” he said.

Aramco was the driving force for borrowings in 2019. The company’s US$12bn foray into the bond market in April was responsible for more than half of all regional debt sales in the year.

Saudi borrowing is poised to fall in 2020 now that Aramco has completed its initial public offering (IPO) and expects soon to finish acquiring Saudi Basic Industries Corp (Sabic). Aramco’s huge bond sale helped finance the Sabic acquisition.

Aramco’s IPO, which is considered the world biggest IPO, turned out even bigger than initially thought.

The final amount raised by Aramco’s sale totaled US$29.4bn as Goldman Sachs Group Inc, one of the underwriters of the world’s biggest IPO, exercised the option to place some shares that were initially separated to avoid price swings, according to a statement. It said 450mn additional shares were placed at SAR32 (US$8.53) with investors during the book-building process.

According to the terms of the offering, the bank could buy the additional shares during the stabilisation period that ended January 9 and give support to the stock, but no such transactions were undertaken during that interval. The IPO relied heavily on individuals and high-net worth investors and funds from the Gulf, with the Saudi government institutions investing almost US$2.3bn into the offering.

Aramco shares retreated 0.6 per cent to SAR34.80 in Riyadh on Sunday, extending drop of 0.4 per cent for the week ended January 9. Still, stock is trading 8.8 per cent higher than the IPO price.