From The Wall Street Journal
Saudi Aramco plans to issue a $10 billion bond as early as next week to help fund its acquisition of a majority stake in Saudi Arabia’s petrochemicals firm, people familiar with the matter said, shining a light on the financial performance of the world’s largest oil company for the first time.
The bond would be the first-ever debt issuance by Saudi Arabian Oil Co., as the oil giant is officially known. The money would be used for a down payment on its $69.1 billion purchase of 70% of Saudi Basic Industries Corp., with the remainder of the acquisition paid in installments over time, the people said.
An Aramco bond would mark a significant step for both the oil firm and the kingdom, which delayed an initial public offering of the energy giant in part because some Saudi officials were concerned about the global scrutiny that a listing would bring. Aramco Chairman Khalid al-Falih has said the firm would release financial statements, including revenue and profit figures, as part of a bond prospectus.
Saudi Arabia has long kept secret Aramco’s finances, only sharing details with banks that have lent it money. Saudi Arabia’s autocratic monarchy has long benefited from keeping the details of the country’s largest revenue source under wraps. Even Aramco’s petroleum reserves were a mystery to oil watchers and analysts until recently, when it allowed external auditors to assess the kingdom’s crude oil reserves and published the figure this year.
A bond will bring less scrutiny to Aramco than an IPO. Tapping the debt markets requires disclosure of financial statements to potential investors. An IPO, meanwhile, would force Aramco to publish public earnings on a quarterly basis, allow analysts to examine executive spending and decision-making and potentially open the company up to lawsuits.
A bond prospectus would provide the first sustained look at the company’s finances, however. Saudi Arabia’s relatively new de facto leader, Crown Prince Mohammed bin Salman has championed financial and economic transparency as part of his kingdom’s national reform program, known as Vision 2030. His treasury has begun publishing fiscal data regularly and established an office to issue tens of billions of dollars of sovereign debt—moves lauded by the global financial community.
At the same time, the 33-year-old Saudi royal has launched an opaque political crackdown, locking up businessmen, clerics and activists in a purge that has drawn international criticism.
Prince Mohammed says he still wants to take Aramco public in 2021, a process that would likely create the world’s largest listed company and intensify investor interest in the kingdom. Bankers say the prince, supported by some key ministers, is likely winning out against more entrenched Saudi officials who have been concerned about opening Aramco up to prying eyes.
A bond would be a logical step on the way to a listing and cheaper than a large loan from banks, analysts say. Aramco will issue the debt to pay upfront for some of Sabic, as the petrochemicals company is known, and then pay the rest in installments, people familiar with the matter said. Aramco and the Saudi sovereign-wealth fund, the Public Investment Fund, which is selling its stake in Sabic to Aramco, haven’t disclosed the terms or time frame for payments.
Aramco’s purchase of Sabic will give Prince Mohammed an injection of cash to pursue his agenda through the PIF. The fund has become one of the highest-profile investors in recent years by partnering with SoftBank Group Corp.’s Vision Fund and has invested or committed nearly $100 billion to tech deals and partnerships outside the kingdom.
PIF has said it aims to be self-funding, rather than take cash from the finance ministry’s annual budget. The fund last year took out an $11 billion syndicated loan from banks, a rare step for a sovereign-wealth fund. It is also looking to unload more mature assets.
Aramco had considered issuing up to $40 billion in what would have been one of the world’s largest ever corporate-bond sales, but has since favored a smaller issuance combined with the agreement to pay PIF over time for the Sabic stake. PIF doesn’t necessarily need the roughly $70 billion upfront to meet its own goals and investment obligations, according to people familiar with the fund.
Aramco executives are still considering the maturity date of any issuance, and examining at least two tranches, one of the people familiar with the matter said. JPMorgan andMorgan Stanley are the global coordinators for the sale, which is likely to see huge investor interest.
Saudi Arabia sold $7.5 billion in sovereign bonds in January in a transaction that attracted $27 billion in orders. Aramco is expected to have a similar credit score to the sovereign, which is rated A1 by Moody’s and A+ by Fitch, indicating low credit risk.
Sabic’s share price was up 1.6% at 126.20 Saudi riyals a share Thursday, a day after Aramco agreed to pay 123.40 riyals a share for PIF’s 70% stake.
