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Saudi Aramco's Bond Is a Chance to Be Greedy

Saudi Aramco's Bond Is a Chance to Be Greedy

(Bloomberg Opinion) -- The whale has landed.

Saudi Aramco could well take the record for the biggest first-time issuer since the sovereign's first dollar deal in October 2016 for $17.5 billion – demand is already reported to be at $45 billion. 

The question now is whether the issuer wants to be greedy on the amount of money it raises, or on the pricing. 

The initial yield over U.S. Treasury securities looks to be barely more than those available for the sovereign’s dollar bonds. These teaser spreads will no doubt be reduced, with final pricing to be set on Tuesday, but the amount they get “walked in” depends also on the eventual amount raised.

Aramco is raising funds to buy a majority stake in Sabic, but since it doesn’t have to come up with the entire $69 billion up front it isn’t under pressure to take all the money that it can right now. Which is just as well – it’s better for Aramco to have an orderly issue this week to ensure a favorable reception for future deals.

Saudi Aramco's Bond Is a Chance to Be Greedy

So if the final size of this deal is close to the initially suggested $10-15 billion, spreads on some of the six portions of the bond could be set lower than those currently available for the sovereign.

Given the opportunity investors have for a more direct claim on the oil company’s assets than they do with the sovereign, and the issuer’s lack of debt, the size of the order book will almost certainly build. The feeding frenzy we’re seeing now could get a lot more intense. 

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

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