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 $10 billion offering this week. Early indications suggest investors are already crowding in.
A message circulated among investors on April 5 said interest in the most highly anticipated sale of the year already totaled more than $26 billion, according to people with direct knowledge of the matter. The state-owned oil giant and bankers spent the last weeks drumming up support for its debut offering at presentations in cities ranging from New York and Chicago to Singapore and Tokyo.
Price Talk
Morgan Stanley, Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc and NCB Capital Co. are also managing the bond sale, according to a prospectus seen by Bloomberg News. The initial price talk on the bond may be announced on April 8, with pricing as early as April 9, the people said. Representatives of the company declined to comment on the sale process.“It will be definitely a jumbo deal with at least four tranches,” said Sergey Dergachev senior portfolio manager at Union Investment Privatfonds GmbH in Frankfurt. “Demand should be huge.” He speculated that demand could even surpass the record $53 billion in bids that Qatar received for its $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 $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 $2 trillion, though not all investors are convinced it’s worth that much.
Torn Investors
The bond sale will extend the already record start for issuers from the Gulf Cooperation Council—exceeding $30 billion so far this year. It caps four consecutive years of bond sales from the Kingdom, most recently pricing $7.5 billion in international bonds in January, only months since the brutal killing of Washington Post columnist Jamal Khashoggi.While demand for the bonds is likely to be high, investors remain torn on whether that interest will allow Aramco to pay yields lower than what its owner does, the Saudi Arabia government. 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.
But 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 Plc, said he wouldn’t be interested in buying Aramco’s bonds at a rate lower than the government’s.
“For an emerging market investor, it’s just the level relative to the sovereign that matters,” Barrineau said.
