Aramco plans debt market comeback with multi-tranche bond deal

Saudi Aramco said on Monday it has hired a group of banks ahead of a multi-tranche U.S. dollar-denominated bond issuance, as the world's largest oil company seeks to raise cash amid lower oil prices.

The announcement comes as Gulf issuers show no sign of slowing this year's blitz on international debt markets as they seek to plug finances hit by weaker oil prices and the coronavirus crisis.

Issuances from the region so far this year have already shot through last year's record, surpassing $100 billion.

Goldman Sachs, Citi, HSBC, JPMorgan, Morgan Stanley and NCB Capital were hired to arrange investor calls starting on Monday ahead of the planned transaction, Aramco said in a bourse filing.

 

Other banks involved in the deal include BNP Paribas, BOC International, BofA Securities, Credit Agricole, First Abu Dhabi Bank, Mizuho, MUFG, SMBC Nikko and Societe Generale, a document issued by one of the banks on the deal showed.

The oil giant, which made its debut in the international debt markets last year when it raised $12 billion after receiving more than $100 billion in orders, did not detail the size of the proposed issuance.

It planned a benchmark multi-tranche offering consisting of three-, five-, 10-, 30- and/or 50-year tranches, subject to market conditions, the document said. Benchmark bonds are generally at least $500 million per tranche.

"The backdrop is supportive," said a debt banker on the deal, citing a $1 billion Islamic bond issuance last week from Dubai Islamic Bank, which achieved record low yields.

Aramco needs cash to pay $37.5 billion in dividends for the second half of 2020 and to fund its $69.1 billion acquisition of 70% of Saudi Basic Industries (SABIC), for which it will pay instalments through 2028. Earlier this year it raised a $10 billion loan.

"In a world searching for yield there should be no shortage of demand. But persistent low oil prices and the threat that poses to long-term cash generation should be reflected in pricing," said Hasnain Malik, head of equity strategy at Tellimer.

Ratings agency Fitch revised its outlook last week on Aramco to negative from stable, a day after similar action on the sovereign of Saudi Arabia, which holds a controlling stake in the oil giant.

"This reflects the influence the state exerts on the company through strategic direction, taxation and dividends, as well as regulating the level of production in line with OPEC commitments," Fitch said.

Aramco's outstanding U.S. dollar-denominated bonds due in 2029 were trading at 2.05% on Monday, a slightly higher yield than Saudi government paper with a similar maturity, Refinitiv data showed.

Aramco earlier this month reported a 44.6% drop in third-quarter net profit as the pandemic continued to choke demand and weigh on crude prices.