Saudi Aramco Raises $12 Billion in Debut Bond Sale
April 09 2019 - 01:17PM
Dow Jones News
By Rory Jones and Summer Said in Dubai and Avantika Chilkoti in London
Saudi Aramco raised $12 billion in its debut international bond
Tuesday, according to people familiar with the sale, an issuance
that sparked massive interest among investors eager to access the
world's most profitable company.
Government-owned Aramco, known officially as Saudi Arabian Oil
Co., received more than $100 billion in orders for its bond and had
been expected to raise about $10 billion from the sale. Saudi
officials are likely to view the large investor interest as a
positive bellwether for the oil giant's potential initial public
offering, which is expected in 2021.
"I think this is a prelude to listing," said Conrad Saldanha,
equity portfolio manager at Neuberger Berman Group LLC. "This is
the biggest oil-production firm in the world. It looks interesting
in that respect."
The company is bigger and more profitable than Apple Inc.,
Alphabet Inc. and Amazon.com Inc. combined. The oil firm's
disclosure of its books via the bond sale is the first step toward
a potential public listing.
Saudi Crown Prince Mohammed bin Salman has said a listing of
Aramco is one of the central elements of a multiyear economic and
social-reform program in the kingdom. He wants the country's
sovereign-wealth fund to use the proceeds to invest in new
technologies and industries that diversify the economy beyond
oil.
Demand for the Aramco bond has come despite international
criticism of the kingdom over the murder of journalist Jamal
Khashoggi and its treatment of social and political activists. The
killing deterred some foreigners from investing in the kingdom, but
debt and equity investors have been eager to buy into Saudi
Arabia's economic reform story.
The debt sale involved five different bond types, with
maturities ranging from three years to 30 years, according to
people familiar with the sale.
The yields available on the Aramco bonds were lower than those
on Saudi government debt of similar maturities, according to yields
provided by people close to the sale. That indicates the strong
demand for the debt.
Corporate bonds usually yield higher than the sovereign debt of
the country where they are based. But credit-rating agencies last
week said Aramco's debt was limited by the firm's ties to the
sovereign and would be rated higher on a stand-alone basis,
indicating its bonds might yield below Saudi Arabia's.
"They got what they wanted," said one investor. "They borrowed
at a cheaper rate than the sovereign."
Yerlan Syzdykov, head of emerging markets at France's Amundi SA,
says this week's oversubscribed deal provides the Saudi Arabian
government with a platform to push through major reforms at Aramco
and raise further capital.
"They do need to establish their presence in capital markets so
they can tap into these markets in future," Mr. Syzdykov said,
adding that appetite for any future IPO will rest on Saudi Arabia's
decision on size, pricing and choice of jurisdiction for the
deal.
An Aramco IPO was originally earmarked for 2018 but stalled over
valuation concerns and objections among some Saudi officials that
raising debt was cheaper, and less hassle, than allowing investors
to buy into the company. Prince Mohammed valued the company at $2
trillion but analysts put the figure below $1.5 trillion.
Since then, the Saudi government has pushed Aramco to buy the
Saudi sovereign-wealth fund's majority stake in the country's
petrochemicals giant, Saudi Basic Industries Corp., or Sabic. The
proceeds of Tuesday's bond sale are expected to help fund that
$69.1 billion acquisition, which is anticipated to close next
year.
Although some Saudi officials were worried about opening up
Aramco's books to the public via an IPO, the marketing prospectus
for the oil firm's bond last week disclosed financial statements
for the first time, showing it is the world's most profitable
company.
In 2013, Verizon Communications Inc. sold $49 billion of bonds
on orders of $100 billion, the last time a corporate saw such high
demand.
The $100 billion figure likely overstates the true demand for
Aramco's debt. Investors traditionally submit larger bond orders to
popular debt sales than the number they want to boost their chances
of ultimately being allocated a decent amount. Bankers also
normally cut the yield on offer to whittle away some of the order
before allocating bonds to investors who really want them.
"Aramco's debut bond issue has achieved its goal of capturing
the interest of international investors," said Nick Wilson,
chairman of Gulf Investment Fund PLC. "With this level of demand,
the Saudi government may well feel that further bond issuance is a
simpler way to raise cash from their flagship asset than the
scrutiny and publicity required for an equity IPO."
Saudi Arabia's own debt sales also have been popular. The
kingdom has sold close to $60 billion in bonds in the past three
years, becoming one of the biggest issuers of debt among emerging
markets. In January, the sovereign issued $7.5 billion in bonds,
drawing $27 billion in orders.
Write to Rory Jones at rory.jones@wsj.com, Summer Said at
summer.said@wsj.com and Avantika Chilkoti at
Avantika.Chilkoti@wsj.com
(END) Dow Jones Newswires
April 09, 2019 13:02 ET (17:02 GMT)
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