Demand for Aramco's debut bonds at over $50 billion

Daniel Fowler
April 12, 2019

Khalid al-Falih told an energy conference in the Saudi capital on Monday that worldwide investors had so far made bids totalling three times the value of the bonds.

The Aramco deal is one of the most hotly anticipated debt deals of the year, marking the first time the Saudi oil giant has tapped the worldwide bond market. The company told investors it would sell debt in six portions, from three to 30 years, according to the people familiar with the matter. "For equity investors this is always going to be an issue, more so than for bond investors". For Saudi Arabia and Aramco itself, the early success in selling the bonds marks a tremendous turnaround after investors, Wall Street bankers and corporate titans briefly shunned the kingdom previous year following the assassination of journalist Jamal Khashoggi.

Saudi Aramco's crucial bond issue, set to close on Wednesday, has already attracted higher-than-expected interest from worldwide investor.

Both Fitch Ratings and Moody's Investors Service assigned Aramco the fifth-highest investment-grade rating, the same as Saudi sovereign debt, but lower than oil majors Exxon Mobil, Royal Dutch Shell and Chevron.

"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.

Initial indications of over $30 billion in investor demand - before the bonds were actually sold - prompted Aramco to market the notes with nearly no premium to Saudi government debt.

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"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.

Other observers suggested the issuance was a "relationship building exercise" ahead of Aramco's planned 2021 initial public offering.

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 acquisition will be financed through a mixture of bonds as well as the oil company's vast cash reserves, The National reported last week. 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 agreed to buy a 70 percent stake in SABIC from Saudi Arabia's sovereign wealth fund, known as the Public Investment Fund (PIF).

Morgan Stanley and JP Morgan are joint global coordinators.

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