Key Points:
1.Aramco would seek to raise $3 billion to underpin capital spending and operational activities.
2.This was in line with Saudi Arabia’s holistic approach to meeting fiscal needs through an increase in debt issuance.
3.The bond offering was attracting notable interest from investors, a reflection of confidence in both Aramco and the wider Saudi economy.
Saudi Aramco plans to raise $3 billion from its second international bond sale in two months, in a bid to tap into the current profligate year for borrowings by the kingdom.
The company has mandated banks to sell dollar denominated bonds, it said in a statement to the Saudi stock exchange. It did not give details of the size but sources close to the matter said it expected to raise $3 billion split equally into sukuk, or Islamic compliant securities, with ten and five year maturities.
This increase in government and quasi governmental borrowing reflects the ambitious plans for economic diversification called for by Crown Prince Mohammed Bin Salman. But those plans are being complicated by lower oil prices, trading at about $75 a barrel on markets in London, well below the nearly $100 price at which the kingdom breaks even. The decline in crude prices has also dented Aramco’s revenue, albeit with its massive dividend payout continuing unabated an excellent avenue for the government to solve its budget deficit problem.
In spite of that, Aramco still maintained its second-quarter dividend at $31 billion that was to be paid to the Saudi government, as well as other shareholders, while it is supposed to pay $124 billion this year. Free cash flow for the quarter came in at about $19 billion, not enough to cover the dividend, suggesting the company may need to increase debt levels in order to finance these types of dividends.
In July, Aramco also raised $6 billion in an first dollar debt sale for three years, which included the sale of 40 year bonds. In June, the Saudi government also sold a stake in Aramco, which fetched $12.35 billion.
Other state entities have tapped the market of late as well; the Public Investment Fund, the kingdom’s sovereign wealth fund, issued $2 billion earlier this month, taking its year to date issuance to approximately $10 billion. The PIF, controlled by the crown prince, is one of the vital pillars in the kingdom’s drive to modernize its finances.
