From The Wall Street Journal
Saudi Aramco no longer plans to launch what would have been one of the world’s largest-ever corporate-bond sales to fund a roughly $70 billion stake in the kingdom’s national petrochemical firm, looking instead to options requiring less public disclosure, people familiar with the matter said.
Saudi Arabian Oil Co., as the company is officially known, had considered issuing up to $40 billion in bonds to help buy 70% of Saudi Basic Industries Corp., The Wall Street Journal has reported.
But people familiar with Aramco’s financing discussions say the oil firm is now worried about the level of disclosure required for a bond issue and whether the uncertain outlook for the oil market might damp demand for debt or increase the cost of borrowing.
Aramco executives also have raised concerns that the recent diplomatic fallout from the murder of Saudi dissident journalist Jamal Khashoggi might affect investors’ appetite for Saudi debt, the people said.
The Saudi government is encouraging Aramco to buy the stake to inject cash into its sovereign-wealth fund, the Public Investment Fund, or PIF, which owns the stake in the petrochemicals firm.
Instead of a bond, Aramco is now looking at a combination of other potential financing options, people familiar with the matter said.
It could organize a syndicated loan with banks and use Sabic’s balance sheet to raise debt to pay for some of the roughly $70 billion cost, the people said. The oil firm also could reduce the amount of cash it pays in royalties to the Saudi finance ministry for public spending and instead transfer money to PIF, or stagger payments from its cash flow to the fund over time, these people added.
Aramco declined to comment. Representatives for PIF and Sabic didn’t immediately respond to requests for comment.
The potential bond sale had excited bankers hoping to win a place arranging the capital raising. JPMorgan and Morgan Stanley are already acting as advisers for Aramco on the Sabic purchase and Goldman Sachs and Bank of America Merrill Lynch are working with PIF, according people familiar with the matter.
The Aramco acquisition of the Sabic stake is expected to infuse PIF with billions of dollars to invest in technology companies and diversify the kingdom’s oil-dependent economy. PIF already has committed $65 billion to two outside funds—one for infrastructure investment managed by Blackstone Group LP and $45 billion for a technology fund led by SoftBank Group . It has also said it would develop new billion-dollar industries in tourism, entertainment and defense.
Proceeds of a roughly $100 billion IPO of Aramco had been earmarked for the sovereign-wealth fund, but that process has since stalled in part because of the level of scrutiny a listing would have brought to Saudi Arabia’s state oil giant.
Although not as detailed as an IPO, a corporate bond sale on international markets typically would require a company to publicly disclose three years of audited financial statements and highlight key risks to operations. Aramco currently doesn’t disclose income statements, and its balance sheet is a black hole for analysts.
Neither Aramco nor Sabic is enthusiastic about the deal, but the two companies have acquiesced under pressure from government officials, The Wall Street Journal has reported, citing people familiar with the matter.
Aramco executives also are now concerned that market conditions aren’t ideal for bond sales.
Oil prices have fallen more than 20% over the past month and a half, dropping most dramatically since the U.S. government exempted hundreds of thousands of barrels a day of Iranian crude from new American sanctions. Saudi Arabia is moving to prop up prices with a production cut, but uncertainty over how much it will cut and whether it will boost prices has clouded the outlook for oil traders and producers.
Aramco executives also have tussled with PIF over the price of Sabic, further complicating the deal. Any agreement below Sabic’s listed market price would inject less capital into the sovereign-wealth fund and likely force down Sabic’s listed shares, hurting minority shareholders, analysts say.
Sabic lists 25% of its shares on the Saudi Stock Exchange and has a market capitalization of roughly $100 billion.
