Saudi Aramco's Bond Is a Chance to Be Greedy

Aramco’s bond debut attracts $30bn bids

A bond sale by energy giant Saudi Aramco to raise $10 billion towards its purchase of a controlling stake in chemicals behemoth SABIC closes Wednesday, Riyadh's energy minister said.

The investor clamour raised even more interest than the Kingdom's sovereign bond market debut in 2016, which drew offers worth more than $67bn, and trounced the $52bn interest in the $12bn deal offered by Gulf rival Qatar. "For equity investors this is always going to be an issue, more so than for bond investors".

The Aramco bond has attracted interest from a wide range of investors, as the oil producer's vast profits would put its debt rating - if unconstrained by its sovereign links - in the same league as independent oil majors like Exxon Mobil and Shell.

"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 state-owned oil giant is marketing a US dollar-denominated debt issue split into six tranches with maturities ranging from three to 30 years.

People familiar with the matter told Reuters that Aramco's vast profits - almost three times those of Apple a year ago - 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.

The bonds are divided into tranches of three, five, 10, 20 and 30 years.

The order book for Aramco expanded from about $40 billion when the deal kicked off, people with knowledge of the deal said.

The purchase effectively merges the kingdom's two largest companies, handing PIF around the same amount it had expected from the much-delayed Aramco IPO.

The bond will create a U.S. dollar curve for the company, and also finance the US$69bn acquisition of 70% of Saudi Basic Industries Corp (SABIC), a petrochemical company from the kingdom's wealth fund.

Aramco said it will use the proceeds from the bond sale for "general purposes".

In part due to worldwide condemnation of the Khashoggi killing, Aramco past year postponed a planned initial public offering to 2021, citing unfavourable market conditions.

In a rare development for a state-owned company, Aramco could be on track to pay less for its debt than the Saudi government, the same people said, asking not to be named before the bond pricing later on Tuesday. The offering also includes a three-year floating rate bond.

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



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