Daily Management Review

Aramco Plans Multi-Tranche Bond Deal For International Debt Market


Aramco Plans Multi-Tranche Bond Deal For International Debt Market
As a part of its plan to raise cash amid lower oil prices, the largest oil company in the world Saudi Aramco has hired a group of banks prior to its multi-tranche U.S. dollar-denominated bond issuance, the company said on Monday.
Bond issuers from the Gulf region have shown no signs of letting up on issuing of bands this year and to tap into the international debt markets because of the need of plugging of the hit to their finances because of low oil prices and the pandemic.
The total value of bonds issued by the region so far this year has already shot past last years record issuance of $100 billion.
Aramco said in a bourse filing that it had hired Goldman Sachs, Citi, HSBC, JPMorgan, Morgan Stanley and NCB Capital to arrange investor calls starting on Monday prior to the planned transaction.
A document issued by one of the banks on the deal showed that BNP Paribas, BOC International, BofA Securities, Credit Agricole, First Abu Dhabi Bank, Mizuho, MUFG, SMBC Nikko and Societe Generale are the other banks that are involved in the deal.
The size of the proposed issuance has not been detailed by the oil giant. Saudi Aramco last year went to the international debt markets for the first time and the company got more than $100 billion in orders but managed to ultimately raise only $12 billion.
The document said that the company has planned a benchmark multi-tranche offering consisting of three-, five-, 10-, 30- and/or 50-year tranches, subject to market conditions. Benchmark bonds are generally at least $500 million per tranche.
"The backdrop is supportive," said a debt banker on the deal, citing a $1 billion Islamic bond issuance last week from Dubai Islamic Bank, which achieved record low yields.
Aramco is scheduled to pay $37.5 billion in dividends in the second half of 2020 for which it needs cash. It also needs money to fund its $69.1 billion acquisition of 70 per cent stake in Saudi Basic Industries (SABIC) and under the deal Aramco will need to pay instalments till 2028. A $10 billion loan was raised by it earlier this year.
"In a world searching for yield there should be no shortage of demand. But persistent low oil prices and the threat that poses to long-term cash generation should be reflected in pricing," said Hasnain Malik, head of equity strategy at Tellimer.
Its outlook for Aramco was changed from stable to negative by ratings agency Fitch which was preceded by a similar downgrading of the sovereign of Saudi Arabia, which has a controlling stake in the oil giant.
"This reflects the influence the state exerts on the company through strategic direction, taxation and dividends, as well as regulating the level of production in line with OPEC commitments," Fitch said.
A 44.6 per cent fall in its third-quarter net profit was reported by Aramco earlier this month as the company continued to take the hit of lower demand for oil because of the pandemic and weak global prices.