MOSCOW (MRC) -- Saudi Aramco, the world's largest oil firm, returned to the debt markets for the first time since April of last year, selling USD8 billion of bonds to help fund the world’s biggest dividend, reported Bloomberg.
The state oil and gas firm issued the debt on Tuesday after slumping crude prices caused profit to fall by 45% in the third quarter. That’s left it unable to generate enough cash to fund shareholder payouts it’s promised will reach USD75 billion this year. Almost all of those will go to the Saudi Arabian government, which needs the money to plug a widening budget deficit and prop up a slumping economy.
Aramco’s deal was the largest from a company in emerging markets this year, according to data compiled by Bloomberg. The firm sold tranches maturing in three, five, 10, 30 and 50 years. Investors placed more than $50 billion of orders, according to people with knowledge of the matter. Pricing ranged from 1.32% for the shortest notes to 3.65% for the 50-year portion. The spreads over US Treasures were between 110 basis points and roughly 200.
Benchmark Brent oil has dropped almost 35% this year to around USD44 a barrel, with the coronavirus pandemic and lockdowns sapping demand for energy. Still, yields in the developed world are so low that investors have rushed to buy highly-rated emerging-market assets, including those of Aramco, the world’s biggest oil company. The yield on the firm’s USD3 billion of bonds due in 2029 has dropped to 2.11% from 3.04% at the start of 2020. That’s only slightly higher than the rates on the Saudi government’s equivalent bonds.
Tuesday’s deal was also helped by the more bullish sentiment among investors following this month’s progress on coronavirus vaccines. And while some bond traders are wary that U.S. President-elect Joe Biden might regulate oil and gas companies more, Aramco benefits from having such low production costs, according to Todd Schubert, head of fixed-income research at Bank of Singapore.
The Dhahran-based company, rated A1 by Moody’s Investors Service, 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%, above its target range of 5% to 15%. Debt also rose because the company took on loans to pay for a USD69 billion acquisition of Saudi Basic Industries Corp., a chemical maker, earlier this year.
Aramco listed shares on the Saudi stock exchange last December. It said it would pay an annual dividend of USD75 billion for at least five years after the initial public offering. It may need to tap the bond market again, given the size of those commitments, according to Bloomberg Intelligence.
The dividend pledge has helped prop up Aramco’s shares. They’ve risen 0.7% this year, while those of rivals such as BP Plc and Royal Dutch Shell Plc have fallen more than 40%.
Still, Saudi Arabia’s reliance on Aramco to support its fiscal needs will weigh on the company’s balance sheet and “risks placing increasing stress on its credit profile,” said Jaimin Patel, a BI analyst.
The lead banks on Tuesday’s bond sale were Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Morgan Stanley and NCB Capital.
Aramco raised USD12 billion in its debut Eurobond sale last year and attracted around USD100 billion of orders.
As MRC wrote before, Saudi Aramco and Saudi Basic Industries Corporation (SABIC) have decided to reevaluate their crude-oil-to-chemicals project in Yanbu on the kingdom's west coast, according to an Oct. 18 statement on the Tadawul stock exchange, as they slash spending due to low prices. The USD20 billion project may be downsized to use Aramco's existing facilities in the port city, instead of building a new plant, the statement posted by SABIC said.
We remind that in June, Aramco said it had completed the share acquisition of a 70% stake in SABIC from the Public Investment Fund, the sovereign wealth fund of Saudi Arabia, for a total purchase price of Riyals 259.125 billion (USD69.1 billion). Combined, in 2019 Aramco and SABIC recorded petrochemicals production volume of nearly 90 million mt, including agri-nutrient and specialty products.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC"s ScanPlast report, Russia"s estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers" inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
Saudi Aramco, officially the Saudi Arabian Oil Company, is a Saudi Arabian national oil and natural gas company based in Dhahran, Saudi Arabia. Saudi Aramco"s value has been estimated at up to USD10 trillion in the Financial Times, making it the world"s most valuable company. Saudi Aramco has both the largest proven crude oil reserves, at more than 260 billion barrels, and largest daily oil production.