Aramco bonds draw investor interest

Orders for oil behemoth Saudi Aramco’s debut bond offering are on track to smash records, demonstrating that investors will not allow last year’s killing of Saudi journalist Jamal Kashoggi to deter them from getting in on the maiden debt offering from the world’s most valuable company.

State-owned Aramco announced on 9 April, 2019, that it would increase the amount it was raising from $10bn to $12bn after receiving a record-breaking $100bn in orders. It is the first public offering (IPO) from the 86-year-old company, seen as a possible preamble to a long-mooted IPO.

The bond funds will go partly towards financing the purchase of a 70% stake in petrochemicals giant Sabic,, from the Public Investment Fund of Saudi Arabia, for $69.1bn.

As part of the bond offering, Aramco opened up its books for the first time. This revealed it is the world’s most valuable company by a wide margin with $111.1bn in net income in 2018, double that of tech giant Apple and five times that of oil production rival Royal Dutch Shell.

While rating agencies have tied Aramco’s credit rating to the Saudi state’s – therefore falling short of a top-grade AAA – investors are signalling that they give credence to the health of the company’s finances over any concerns about its state ties.

The company financials revealed in the course of the bond issuance “reconfirm what people had thought before about the financial health of the business. The absolute debt numbers are so low, that would surprise some,” says Rehan Akbar, vice president and senior corporate credit analyst at rating agency Moody’s. “It would reconfirm to others that the company is well and prudently managed, that the balance sheet is strong.”

These developments at Aramco are seen as tied to the drive by Saudi crown prince Mohammed Bin Salman to modernise and diversify the country’s economy. The purchase of Sabic is part of Aramco’s internal strategy to diversify from an upstream oil company into a more holistic energy company.

The process, however, will be gradual. “In a smaller business this kind of acquisition [of Sabic] would be transformational... but again with a business of this size, it will take time,” says Mr Akbar. “The Sabic acquisition gives a taste of what the strategy is. Certainly there is a strategy, and it is to be more prominent in downstream. With these moves into petrochemicals and refining and you’re seeing that.” 

Once the darling of the west for his supposedly modern outlook, the crown prince’s international image – and that of Saudi Arabia – was damaged when Mr Kashoggi was murdered by a Saudi hit squad in the country’s Turkish consulate in October 2018. But while investors hung back for a time, the riches promised by getting a piece of Aramco appear to be too big of a prize to pass up.