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.

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.

Saudi Aramco Offers Dollar Bonds at Similar Yields to Kingdom

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.

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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