Saudi Aramco mulls global bond sale for the first time

Plans — still preliminary — would allow company to buy 70% stake in Sabic from wealth fund

Saudi Aramco is weighing tapping the international bond market for the first time to finance the acquisition of petrochemical giant Sabic, a move into global capital markets that could offer an alternative to an initial public offering, according to people familiar with the talks.

If Aramco goes ahead with an international bond — potentially among the biggest ever done by a corporate issuer — the sale would force the world’s largest oil producer to disclose its accounts to investors for the first time since nationalisation four decades ago as well as many other details about oil reserves and operations.

The plans for a bond, likely to be combined with banks loans, are very preliminary but would allow the state-owned company to raise cash to pay the country’s sovereign wealth fund for the 70 per cent stake it owns in Sabic, valued at about $70 billion (Dh257 billion). In turn, the Public Investment Fund would obtain the money it had initially hoped to raise from the Aramco IPO, the same people said, asking not to be named because the talks are private.

Aramco hasn’t yet started talks about the size of any bond, which would depend on how large a stake it buys in Sabic and how much the banks are willing to lend directly. It could rank among the largest ever.

Verizon Communications Inc issued the largest ever corporate bond in 2013, raising $49 billion (Dh180 billion) to buy a stake in rival Verizon Wireless Inc. Anheuser-Busch InBev raised $46 billion in 2016 to finance the takeover of SABMiller Plc.

The Aramco-Sabic deal could give Saudi Crown Prince Mohammad Bin Salman a shrewd way to avoid an IPO that has proven far more difficult than envisaged, while still raising cash for the sovereign wealth fund. The main difference would be the origin of the cash: rather than equity investors, it would come from bank loans and bond investors.

Market valuation

Raising cash from bondholders solves another problem: Aramco’s valuation. MBS, as the 32-year-old crown prince is known, said the company would be worth at least $2 trillion — more than double the current market valuation of Apple Inc — and perhaps as much as $2.5 trillion. Yet most analysts and investors have said that $1 trillion to $1.5 trillion was more realistic. A bond won’t put a value on the company.

Aramco has so far largely avoided bond markets, relying almost exclusively on its own cash or bank loans. The closest it has come to issue debt is last year when it sold a debut local currency Islamic bond, or sukuk. The prospectus for the 2017 sukuk, which raised about 11.25 billion riyals ($3 billion), didn’t include any financial information on Aramco, according to a copy of the document reviewed by Bloomberg News.

Today, Aramco is virtually debt free, according to accounts obtained by Bloomberg News for the first half of 2017.