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Aramco planning to issue $10bn bonds to finance its purchase of SABIC

Aramco is the most profitable company in the world and that's one of the reasons it will borrow

Saudi Aramco made $111.1bn in 2018 profits to overtake Apple Aramco, the world’s top oil producer, has been rated A+ by Fitch in its first-ever credit rating, ahead of the state oil giant’s first global bond Aramco intends to issue its first U.S. dollar-denominated bonds, expected to be for at least $10 billion, in the second quarter

Aramco’s shares are owned by the Public Investment Fund, and the company bought the 70% share that the fund owned for $69.1bn.

Aramco is the largest oil company in the world, so it can do that, especially that the PIF needs cash to expand its acquisition of global assets, and prepare for the sale of 5% of Aramco in 2021.

Meanwhile, ratings companies are having a field trying to solve the puzzle ahead of bond buyers’ attempt at funding the $10bn issues Aramco plans to release

S&P Global Ratings 

S&P Global Ratings sees Saudi Aramco's acquisition of a majority stake in Saudi Basic Industries Corp. (SABIC; A-/Stable/A-2), the world's fourth largest chemicals company, as a strategic move by Saudi Aramco to expand its downstream operations.

“We believe the deal will help add value to the crude oil it produces and expand its petrochemicals business, where demand is increasing faster than for crude oil,” said S&P.

“The transaction remains subject to certain closing conditions. The sale should also facilitate strategic investments by PIF, which is a core vehicle for the government's broader economic diversification plan.”

Aramco most profitable company

Quoting credit ratings agency Moody’s Investors Services, The Guardian said  Saudi Aramco made $111.1bn in 2018 profits to overtake Apple (profit of $59.5bn in 2018) on revenues of $355.9bn last year, as it produced 10.3m barrels per day of crude oil.

"It means the company made more than four times the profits of other oil industry rivals last year, including the Anglo-Dutch company Royal Dutch Shell, which made $23bn, and the US firm Exxon Mobil, which made $21bn," said the Guardian.

Saudi Aramco gets rated 

Saudi Aramco, the world’s top oil producer, has been rated A+ by Fitch in its first-ever credit rating, ahead of the state oil giant’s first global bond, according to Reuters

Aramco generated earnings before interest, tax and depreciation (EBITDA) of $224 billion in 2018, Fitch said on Monday, surpassing ExxonMobil, the world’s largest listed oil firm.

“Aramco intends to issue its first U.S. dollar-denominated bonds, expected to be for at least $10 billion, in the second quarter to help finance its acquisition of a stake in SABIC, the world’s fourth-largest petrochemicals maker,” said Reuters.

“The Saudi oil producer is expected to start meeting bond investors this week,” sources familiar with the matter told Reuters.

Credit ratings allow investors to compare and assess the credit quality of bond issuers and their debt securities, and are important in determining how much borrowers have to pay.

As a standalone business, Aramco could outweigh its international peers, but most of its assets are in Saudi Arabia and it is tightly linked to Saudi Arabia’s economic policies.

National oil companies are generally rated at the same level as or slightly lower than their governments.

“Saudi Aramco’s rating is constrained by that of Saudi Arabia (A+/Stable). This reflects the influence the state exerts on the company through taxation and dividends, as well as regulating the level of production in line with its OPEC commitments,” Fitch said.

The rating agency said it put Saudi Aramco’s “standalone credit profile (at) ‘AA+’”.

Aramco is still by far the world’s biggest oil producing company, ahead of regional peers like Abu Dhabi National Oil Company (ADNOC) and listed oil majors Shell, Total and BP, Fitch said.

“In 2018, its (Aramco’s) liquids production and its total hydrocarbon production averaged 11.6 million and 13.6 million barrels of oil equivalent per day, respectively,” Fitch said.