With an Aramco IPO still a couple of years away, a bonds issuance is the next best opportunity for investors to nab a piece of Saudi oil business.
While the world waits for the not-so-distant Saudi Aramco IPO, those who can't wait until 2021 had a chance to finally get in on the action.
Yesterday, the mega oil company issued its first bonds ever to the international investor market, where demand for the bonds soared above $100 billion, according to a person familiar with the transaction, multiple media sources have reported, including CNN. Sources expect the money to be raised from the bonds to be between $10 and $12 billion.
As CNN put it so aptly, international investors are "falling over themselves to lend money to Saudi Arabia's hugely profitable state-owned oil company."
When you are the most profitable company in the world, with billions of dollars' worth of fossil fuel deposits at your disposal for the unforeseeable future, calling it a wise investment would be a massive understatement.
Like Aramco's proposed IPO, the bonds issuance will serve to fund Crown Prince Mohammed Bin Salman's Vision 2030 plans, which seek to diversify the Kingdom's oil-reliant economy.
Still, Saudi has played it safe - and smart.
"Aramco's entry into the bond market permits the Kingdom to obtain needed cash while at the same time maintaining its sovereign control over Aramco," Michael O'Kane, author and law counsel in Saudi told AMEinfo. "Turning Aramco into a private company exposes the company to litigation in a way that a bond sale does not. It's a shrewd move."
Ahead of its first global bonds issuance, Saudi Aramco was rated A+ by Fitch in its first-ever credit rating, Reuters reported.
"State-owned Aramco’s bond issue, split into maturities ranging from three to 30 years, is seen as a gauge of potential investor interest in the Saudi company’s eventual initial public offering," Reuters explained.
As such, with the IPO on delay, 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," OilPrice.com said.
The much-publicized IPO that is ever looming on the horizon is expected to value Aramco at $2 trillion market valuation, with a 5% stake sale raising $100 billion.
More immediately, the bonds issuance will serve to fund Aramco's acquisition of a 70% stake in SABIC (Saudi Basic Industries Corporation), the state-owned petrochemical company. Last month, Aramco announced in a statement that it is buying the 70% SABIC stake owned by the Public Investment Fund (PIF) for $69 billion, or 123.4 riyals ($33.3) per share.
The PIF's Managing Director Yasir al-Rumayyan said in the statement: “[The sale] will unlock significant capital for the PIF’s continued long-term investment strategy, underpinning sectoral and revenue diversification for Saudi Arabia.”