Saudi Aramco Offers Dollar Bonds at Similar Yields to Kingdom

(Bloomberg) -- Saudi Aramco is offering its debut dollar bonds at yields similar to the kingdom’s sovereign debt after attracting more than $40 billion from investors.

The world’s biggest oil producer set initial price guidance on 10-year debt at around 125 basis points over U.S. Treasuries of similar maturity. That’s equivalent to a yield of about 3.75 percent, compared with 3.74 percent for Saudi sovereign debt with a similar maturity.

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Price guidance on the other maturities:

• Debt maturing in three years at around 75 basis points over Treasuries
• Three-year floating-rate securities at equivalent spread over Libor
• Debt maturing in five years at around 95 basis points over Treasuries
• Debt maturing in 20 years at around 160 basis points over Treasuries
• Debt maturing in 30 years at around 175 basis points over Treasuries

Though a contender for the highest rating from Moody’s Investors Service, Aramco’s state-owned status means it shares Saudi Arabia’s A1 sovereign credit score, which is five steps below the top grade. The issuance is expected raise as much as $15 billion.

“It’s highly likely they will end up pricing inside the sovereign,” said Patrick Wacker, a fund manager for emerging-markets fixed income at UOB Asset Management Ltd. in Singapore. “We see Aramco as a strong credit but Saudi government risk and Aramco are strongly linked.”

Aramco’s rating from Moody’s is the same as BP Plc’s. The yield on the London-based BP’s bond maturing in 2028 was at 3.4 percent.

Aramco plans to use proceeds from the bond sale to help fund its purchase of a 70 percent stake in Saudi Basic Industries Corp. for $69 billion. The offering forced Aramco to disclose its accounts to investors for the first time since its nationalization about four decades ago. It’s also a precursor to even greater transparency required for an initial public offering, planned for 2021.

Read More: Aramco Is World’s Most Profitable Firm But Cash Flow Lags Rivals

Exxon Mobil Corp. has a triple A rating from Moody’s and the second-highest level at S&P Global Ratings. Aramco’s rating followed state-owned Abu Dhabi National Oil Co., which got a AA long-term credit rating at Fitch in February.

Aramco had mandated JPMorgan Chase & Co., Morgan Stanley, Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings and NCB Capital to manage the offering, according to a person familiar with the matter.

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