Aramco Set for Mega Debt Deal Pitched by JPMorgan's Dimon

(Bloomberg) -- In a bond sale closely watched by investors globally, Saudi Aramco and its bankers are preparing to kick off what could be at least a $10 billion offering next week. Early indications suggest investors are already crowding in.

A message circulated among investors on Friday said interest in the most highly anticipated sale of the year already totaled more than $26 billion, according to people with direct knowledge of the matter. The state-owned oil giant and bankers spent the last week drumming up support for its debut offering at presentations in cities ranging from New York and Chicago to Singapore and Tokyo.

The success of the sale is hugely important for banks, such as JPMorgan Chase & Co., that are working on the company’s behalf. They are eager to run an initial public offering by Aramco -- the world’s most profitable company -- if and when it comes, which would bring lucrative fees for the selected banks. In a rare appearance that underlines the bond sale’s significance, JPMorgan’s Chief Executive Officer Jamie Dimon spoke at a lunch in New York Thursday to market the deal, according to one of the people.

Price Talk

Morgan Stanley, Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc and NCB Capital Co. are also managing the bond sale, according to a prospectus seen by Bloomberg News. The initial price talk on the bond may be announced on Monday, with pricing as early as Tuesday, the people said. Representatives of the company declined to comment on the sale process.

“It will be definitely a jumbo deal with at least four tranches,” said Sergey Dergachev senior portfolio manager at Union Investment Privatfonds GmbH in Frankfurt. “Demand should be huge.” He speculated that demand could even surpass the record $53 billion in bids that Qatar received for its $12 billion bond sale last year.

Aramco is turning to the dollar bond market as the company is starting to raise cash ahead of the purchase of a $69 billion majority stake in domestic petrochemical giant Sabic. The bond sale represents an alternate way for Saudi Arabia to raise money and diversify from oil after an IPO of Aramco was postponed last year. Saudi Arabia has valued Aramco at a whopping $2 trillion, though not all investors are convinced it’s worth that much.

Torn Investors

The bond sale will extend the already record start for issuers from the Gulf Cooperation Council -- exceeding $30 billion so far this year. It caps four consecutive years of bond sales from the Kingdom, most recently pricing $7.5 billion in international bonds in January, only months since the brutal killing of Washington Post columnist Jamal Khashoggi.

While demand for the bonds is likely to be high, investors remain torn on whether that interest will allow Aramco to pay yields lower than what its owner does, the Saudi Arabia government. On the one hand, Aramco is immensely profitable and produces endless cash flow. In addition, investors who manage high-grade corporate debt are showing interest in buying the Aramco bonds. All of that could bring the borrowing cost lower than that of the government, according to Nikolay Menteshashvili, an analyst with Insight Investment in London.

But others see it differently. They say Aramco is inextricably linked to the Saudi government, which is subject to a variety of risks including low oil prices. That’s why Jim Barrineau, head of emerging-market debt at Schroders Plc, said he wouldn’t be interested in buying Aramco’s bonds at a rate lower than the government’s.

“For an emerging market investor, it’s just the level relative to the sovereign that matters," Barrineau said.

To contact the reporters on this story: Lyubov Pronina in Brussels at lpronina@bloomberg.net;Molly Smith in New York at msmith604@bloomberg.net;Kriti Gupta in New York at kgupta129@bloomberg.net

To contact the editors responsible for this story: Larry Reibstein at lreibstein@bloomberg.net;Hannah Benjamin at hbenjamin1@bloomberg.net;Nikolaj Gammeltoft at ngammeltoft@bloomberg.net

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