Saudi Aramco, the world’s largest oil company, has received $85 billion in orders for its debut bond sale, an offering where yields may fall in line or below Saudi Arabia’s sovereign debt.
It’s rare for bonds of a state-owned company to pay less than the sovereign debt and the demand reflects intense investor appetite for high-quality paper. For Saudi Arabia and Aramco itself, the early success in selling the bonds marks a tremendous turnaround after investors, Wall Street bankers and corporate titans briefly shunned the kingdom last year following the assassination of journalist Jamal Khashoggi.
The U.S. has blacklisted 16 Saudi nationals for their role in the Khashoggi murder, according to a statement Monday. The crisis, along with sliding crude prices, hit the kingdom late last year and in early 2019, with the economy slowing down and investors taking money out of the local stock market. Now, the situation appears to be reversing, helped by oil rising to more than $70 a barrel, up from $50 in December.
As part of its debut in the global debt market, Aramco has offered bonds in six portions, from three to 30 years, according to the people familiar with the matter, who asked not to be identified because the information is private. Aramco is expected to raise between $10 billion and $15 billion, with final pricing and size anticipated on Tuesday afternoon London time.
The company expects to pay about 1.25 percentage points more than U.S. Treasuries for its 10-year notes, compared with Saudi bonds trading at about 1.27 percentage points, the banks selling the debt told investors. Traditionally, those risk premiums fall in a high-demand bond sale as the process advances, suggesting Aramco may pay even less.
What Bloomberg Opinion Says
“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.”-- Marcus Ashworth, columnist Click here to view the piece
The Aramco deal is one of the most hotly anticipated debt deals of the year, marking the first time the Saudi oil giant has tapped the international bond market. When Qatar, a rival Middle East nation, sold $12 billion in bonds earlier this year, it got a record $50 billion in orders, evidence of investor appetite for debt of rich, oil-producing nations.
The order book for Aramco expanded from about $40 billion when the deal kicked off, people with knowledge of the deal said.
The deal is largely seen as Plan B to raise money for the country’s economic agenda after the initial public offering of Aramco, which had been slated for 2018, was postponed until at least 2021. In effect, Saudi Crown Prince Mohammed bin Salman is using the company’s pristine balance sheet to finance his ambitions.
Initial Price Talk: