Saudi Aramco May Raise Up to $15 Billion in Debut Foreign Bond
Attendees walk by a sign for the Saudi Arabian Oil Co. (Aramco) on display inside the King Abdulaziz Center for World Culture in Dhahran, Saudi Arabia. (Photographer: Simon Dawson/Bloomberg)

Saudi Aramco May Raise Up to $15 Billion in Debut Foreign Bond

(Bloomberg) -- Saudi Aramco’s widely anticipated international bond debut may raise as much as $15 billion and attract new investors to the oil-rich Gulf region, which was just added to an emerging markets index.

The world’s biggest oil producer may sell the bonds in the first half of the year, and picked five banks to raise the cash it needs for its planned acquisition of petrochemicals giant Saudi Basic Industries Corp.

Read: Aramco Said to Hire JPMorgan, Morgan Stanley for Landmark Bond

Aramco could raise about $10 billion from the bond, Saudi Energy Minister Khalid Al-Falih said last month. The deal would force the company to disclose accounts for the first time since its nationalization about four decades ago.

Mohieddine Kronfol, Dubai-based chief investment officer global sukuk and MENA fixed income at Franklin Templeton Investments

  • “Companies like Aramco will be considered of very high quality and an issuance such as this would be very well received. Something like $10 billion to $15 billion in size is a possibility”
  • The issue “should price above the Saudi curve, with a concession given its size; ultimately, it should come in very close to the sovereign”
  • “A deal of this size would support the fact that the GCC is now a very significant part of the emerging market landscape”
  • “Investors are, generally speaking, underweight the region and these type of transactions will provide them an opportunity to change that”

Richard Segal, senior analyst at Manulife Asset Management in London

  • Given the decision not to proceed with the IPO of Aramco, and the long anticipation of this transaction for the country’s biggest company, there will easily be a good deal of interest
  • Pricing will be straightforward, because companies such as Saudi Electricity Co. and Saudi Basic Industries Corp. have issued in the recent past, and their bonds trade around 20-35 basis points over the sovereign
  • Aramco could trade at a premium of about half that amount
  • The size of the issue would be $10-$15 billion

Abdul Kadir Hussain, head of fixed-income asset management at Dubai-based investment bank Arqaam Capital Ltd.

  • “$10 billion is decent size but don’t forget the kingdom’s initial bond offering in October 2016 was $17.5 billion across three tranches”
  • The market can absorb it especially if it’s index eligible
  • There is a risk of it crowding out other Saudi Arabian issuance

Angad Rajpal, head of fixed income at Emirates NBD Asset Management in Dubai:

  • Aramco would target $10 billion and “could go up to $15 billion if there is sufficient demand”
  • Saudi Arabia may still need sovereign bonds and sukuk this year; will need to be careful about total sovereign and quasi-sovereign supply hitting the market
  • “Right now, there is sufficient dry powder” to fund the deal
  • Investors would demand a premium of at least 25 basis points over the sovereign because it’s a new issuer

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