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    Thursday, July 11, 2024

    Saudi Aramco Plans to Secure $6 billion Through a Three-Part Bond Issuance

    Saudi Aramco successfully attracted over $31 billion in orders for its $6 billion bond issuance, marking its first dollar-denominated debt offering in three years.

    The bids exceeded $11 billion for both the oil giant’s 10- and 30-year notes, as reported by a well-informed source. Additionally, Aramco successfully issued 40-year bonds as part of the transaction that was concluded on Wednesday.

    The robust market demand, as evidenced by final order books exceeding $23 billion, enabled the organization to reduce the spreads offered on each tranche by a minimum of 35 basis points. This transaction represents the company’s inaugural issuance of dollar-denominated debt since its $6 billion offering in 2021.

    Here are the details of Wednesday’s offering:

    Earlier this week, Saudi Aramco announced its intention to issue notes. This transaction is part of the oil-rich kingdom’s ongoing debt issuance strategy to finance various projects.

    Aramco is extending the maturity of its debt as it plans to gradually increase its leverage to support its expansion plans and capital expenditures.

    “Aramco is extending maturities as it will continue to gradually leverage up given their expansion plans and capex needs,” according to Apostolos Bantis, managing director of fixed income advisory at Union Bancaire Privee Ubp SA.

    The Saudi Arabian government and its associated entities have engaged in extensive borrowing activities throughout the current year. As of June, the nation surpassed China as the leading issuer of international debt within emerging markets. This financial strategy aims to secure the necessary funds to address the anticipated budget deficit resulting from an ambitious economic diversification plan. Notably, the Saudi government has been responsible for over half of the total debt issued by Saudi entities during this period.

    Aramco plays a significant role in the Kingdom’s financial strategy. In June, the Saudi government divested a portion of its stake in the company, generating $12.35 billion. Additionally, Aramco’s substantial dividend payments, the largest globally, contribute to the state’s financial resources.

    Despite lower profits, Aramco sustained its quarterly dividend of $31 billion to the Saudi government and other investors in May. However, its free cash flow, calculated as funds from operations minus capital expenditure, amounted to $22.8 billion during the period, falling short of the total dividend payout.

    In the year 2019, Aramco successfully executed its inaugural issuance of a dollar-denominated bond. This was followed by a subsequent offering of 50-year debt in the year 2020. Furthermore, in 2021, the company diversified its funding sources by issuing Islamic notes denominated in US dollars, as evidenced by data compiled by Bloomberg.

    To facilitate the most recent bond sale, Aramco engaged the services of several reputable financial institutions, including Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Morgan Stanley, and SNB Capital, each of which played a crucial role in managing the transaction.

    Aramco intends to utilize the acquired funds for the refinancing of current borrowings and to contribute to its investment program. The company is actively expanding its natural gas production domestically, including substantial contracts worth $25 billion for the Jafurah project. Significant investments are being made to maintain oil production levels, and Aramco is pursuing strategic acquisitions overseas. These include tapping into the LNG supply in the United States and entering into an agreement to participate in an automotive joint venture.

    Chief Financial Officer, Ziad Al-Murshed, shared in February that the company intends to issue long-term debt this year, given the improving financial markets and our strategic objective to optimize our balance sheet leverage. The issuance of long-maturity bonds reflects Aramco’s unwavering confidence in its enduring relevance, even in the face of the energy transition and uncertainties surrounding future oil demand.

     

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