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Saudi Aramco set for mega bond sale; demand already US$30b

Offering pitched by JPMorgan CEO; Morgan Stanley, Citigroup, Goldman Sachs, HSBC also managing the sale

Brussels

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 US$10 billion offering this week. Early indications suggest investors are already crowding in.

Demand for the most highly anticipated sale of the year already totalled US$30 billion, Aramco chairman and Saudi Energy Minister Khalid Al-Falih told Bloomberg TV in an interview in Riyadh on Monday.

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.

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The success of the sale is hugely important for banks, such as JPMorgan Chase, 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 chief executive officer Jamie Dimon spoke at a lunch in New York on Thursday to market the deal, sources said.

Morgan Stanley, Citigroup, Goldman Sachs, HSBC Holdings and NCB Capital are also managing the bond sale, according to a prospectus seen by Bloomberg News. Pricing was expected as early as Tuesday, sources said.

"It will be definitely a jumbo deal with at least four tranches," said Sergey Dergachev senior portfolio manager at Union Investment Privatfonds in Frankfurt. "Demand should be huge."

He speculated that demand could even surpass the record US$53 billion in bids that Qatar received for its US$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 US$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 US$2 trillion, though not all investors are convinced it's worth that much.

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

While demand for the bonds is likely to be high, investors remain torn on whether this will allow Aramco to pay yields lower than what its owner - the Saudi government - does.

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.

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, said he wouldn't be interested in buying Aramco's bonds at a rate lower than the government's. BLOOMBERG