Aramco Sells $6 Billion of Dollar-Denominated Islamic Bonds

Saudi Aramco, the world’s biggest energy company, sold $6 billion of bonds Wednesday in its first dollar-denominated Islamic bond sale.

The state-controlled company sold sukuk due in three, five and 10 years, and the longest portion will yield 120 basis points above Treasuries, according to a person familiar with the matter. That’s down from initial discussions of around 160 basis points.

Order books for the sale were in excess of $60 billion, said people familiar with the transaction, who asked not to be identified as the details are private.

The firm is raising cash to help finance its plans to pay out $75 billion in dividends, a commitment that the oil company made to garner support for its initial public offering. Aramco had to reduce spending, cut jobs and sell non-core assets as the spread of the coronavirus and widespread lockdowns curbed demand for oil last year, the main source of revenue for Saudi Arabia.

Aramco Sells $6 Billion of Dollar-Denominated Islamic Bonds

The price of Brent crude has rebounded, after plummeting to a 21-year low of just below $16 a barrel at one point in 2020. It’s since climbed more than four-fold to over $70 a barrel.

And while Aramco’s first-quarter profits soared -- thanks to the recovery in both crude and gas -- its free cash flow fell short of the $18.75 billion needed to pay the dividend for the period.

Aramco’s oil revenue accounts for about 40% of Saudi Arabia’s gross domestic product and the recent increase in crude prices may drive this even higher, Bloomberg Intelligence analysts Jaimin Patel and Damian Sassower wrote in a note Tuesday. Saudi Arabia’s plans to reduce its dependence on Aramco will be challenged by the nation’s fiscal deficit, they said.

Read more on Bloomberg Intelligence’s credit report on Aramco

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