Published: Fri, April 12, 2019
Markets | By Otis Pena

Saudi Energy Minister: Demand for Aramco Bond Issue Exceeds $30 Bln

Saudi Energy Minister: Demand for Aramco Bond Issue Exceeds $30 Bln

A sign of low-risk and reliability for investors.

"The roadshow is ongoing (and) the deal will close on Wednesday", Falih reportedly said. "The company appeals to more than one type of investor".

This isn't the first time Saudi Arabia has turned to debt markets since the death of Khashoggi.

The bond sale is largely seen as Plan B to raise money for the kingdom's economic agenda after the initial public offering of Aramco was postponed until at least 2021 from an initial 2018 target.

The IPO was announced with a great deal of fanfare by the Saudi Crown Prince, Mohammed Bin Salman (MBS), and the success of the bond sale may mean that he can forego the IPO plan without losing face. It also marks a comeback for Saudi Arabia after the kingdom was shunned by Wall Street and global investors previous year following the assassination of journalist Jamal Khashoggi. "The 30-year will be heavily in demand by USA and Taiwanese investors", he said.

An investment summit in Riyadh that month dubbed "Davos in the Desert" was mostly boycotted by its A-list participants.

Aramco, however, said the bond issue was not linked to the SABIC acquisition, which will be paid in tranches through internal cash flow and, potentially, other resources. Such has been the massive response to the deal, the company has opted not to give any further price indications until after the book has closed today.

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Ahead of the bond issue, Aramco revealed its accounts to worldwide ratings agencies for the first time ever.

And from a purely investment standpoint, financial analysts seem to think that hitting the debt market makes more sense for Aramco than an initial public offering, which has been in the works for some time and much-delayed over issues of transparency and valuation. The banks not only want to participate on the bond sale, but also ensure they're well placed in case Aramco goes ahead with its planned IPO.

JPMorgan Chase & Co. and Morgan Stanley are managing the bond sale along with Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, and NCB Capital Co. Aramco is expected to raise between $10 billion and $15 billion, with final pricing and size anticipated on Tuesday afternoon London time.

The state company has insisted on its independence while meeting investors ahead of the bond issue last week, saying the Saudi government remained committed to Aramco's governance framework to safeguard its independence even when oil prices dropped.

The Aramco bond has attracted interest from a wide range of investors, as the oil producer's vast profits would put its debt rating - if unconstrained by its sovereign links - in the same league as independent oil majors like Exxon Mobil and Shell.

The main question now is whether Aramco even needs to go public, or whether the unusual acquisition of a almost 70-percent stake in Saudi Arabia's Sabic petrochemicals giant means it's sidelined IPO plans altogether.

Aramco is raising funds to buy a majority stake in Sabic, but since it doesn't have to come up with the entire $69 billion up front it isn't under pressure to take all the money that it can right now.

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