Economy

Books on Saudi Aramco bond top US$60bn

Books on Saudi Aramco bond top US$60bn

Saudi Arabia's Aramco's worldwide bonds have been estimated at approximately $85 Billion which according to experts is a record-breaking vote of confidence for the oil giant.

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.

The company opened up a six-stage bond sale on Monday, with investors across Europe, Asia and North America pledging over $30 billion on the first day.

"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.

People familiar with the matter told Reuters news agency that Aramco's vast profits - almost three times those of Apple previous year - meant investors were willing to buy the bonds even if they end up getting a lower return than on Saudi sovereign debt.

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

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The state-owned company has insisted on its independence while meeting investors ahead of the bond issue last week, saying the Saudi government remained committed to Aramco's governance framework to safeguard its independence even when oil prices dropped.

"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.

Analysts, however, expect part of the money to fund Aramco's acquisition of a controlling 70 percent stake worth $69 billion in Saudi Basic Industries Corporation (Sabic), a state-owned petrochemical company.

In a company presentation last week, however, the company said the deal will close in 2020.

Fitch ratings agency said last week that based on information received from Aramco, its planned initial public offering (IPO) still stands and is likely to take place in 2021. The banks not only want to participate on the bond sale, but also ensure they're well placed in case the kingdom goes ahead with an initial public offering for Aramco.

Aramco has lined up a roster of global investment banks supporting its jumbo bond deal, which suggests the mood around dealing with Saudi Arabia is changing as the impact of the Khashoggi crisis ebbs.

JPMorgan and Morgan Stanley are managing the bond sale along with Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings, and NCB Capital.


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