World’s biggest oil firm Saudi Aramco sells 8 billion US Dollars in bonds.

Saudi Aramco sold bonds on Tuesday to help fund a $75bn dividend, returning to the debt markets for the first time since April of last year.The state energy firm issued debt after slumping crude prices caused profit to fall by 45 per cent in the third quarter.

That’s left it unable to generate enough cash to fund investor payouts, almost all of which go to the Saudi Arabian government, which needs the money to plug a widening budget deficit and prop up a slumping economy.

Aramco, the world’s biggest oil company, sold $8bn in tranches maturing in three, five, 10, 30 and 50 years, according to a person with knowledge of the matter. Earlier, the company re-launched the sale for a larger amount after an initial $7.5bn offering.Investor orders for the bonds were in excess of $50bn, according to people with knowledge of the matter.

Benchmark Brent oil has dropped almost 35 per cent this year to around $44 a barrel, with the coronavirus pandemic and lockdowns sapping demand for energy. Despite that, yields in the developed world are so low that investors have rushed to buy highly rated emerging-market assets, including those of Aramco.

The yield on the company’s $3bn of bonds due in 2029 has dropped to 2.12 per cent from 3.04 per cent at the end of 2019. That’s only slightly higher than the yield of Saudi government bonds with a similar maturity.The Dhahran-based firm is rated A1 by Moody’s Investors Service. It raised $12bn in its debut Eurobond sale last year, when it attracted around $100bn of orders.

Emerging-market investors have become more bullish in the past two weeks following the US election and pharmaceutical companies making progress on coronavirus vaccines. And the spreads on Aramco’s new bonds should compensate any investors wary that President-elect Joe Biden might increase regulations on oil and gas companies, according to Bank of Singapore.

“Pricing looks reasonably generous, although it will undoubtedly tighten as the book builds,” said Todd Schubert, head of fixed-income research at Bank of Singapore. Investors are “concerned about oil prices, particularly under a Joe Biden presidency. However, Aramco is such a low-cost producer.”

Aramco has slashed spending, cut jobs, and is considering selling some assets as it looks to save money for its shareholder payouts. Despite these efforts, its gearing – a measure of debt as a percentage of equity – has increased to 21.8 per cent, above its target range of 5 per cent to 15 per cent. Gearing also rose because the company took on debt to pay for a $69bn acquisition of Saudi Basic Industries Corp., a chemical maker, earlier this year.

The energy company listed shares on the Saudi stock exchange last December. It pledged an annual dividend of $75bn for at least five years after the initial public offering.The lead banks on the bond sale are Citigroup, Goldman Sachs Group, HSBC Holdings, JPMorgan Chase & Co., Morgan Stanley and NCB Capital.

Source: Gulf Business

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