Saudi Aramco, the world’s biggest energy company, sold $6 billion of bonds on Wednesday in its first dollar-denominated Islamic bond sale. The state-controlled company sold Sukuk due in three, five and 10 years.
With help from eminent financial advisers including Citigroup Inc. and Goldman Sachs Group Inc., the Saudi Arabian oil giant priced and sold the bonds at around $1 billion in the three-year tranche at 65 basis points (bps) over U.S.Treasuries (UST), $2 billion in the five-year portion at 85 bps over UST and $3 billion in 10-year paper at 120 bps over UST.
According to Reuters, Initial guidance was around 105 bps over UST for the three-year bonds, around 125 bps over UST for the five-year notes and around 160 bps over UST for the 10-year tranche.
Despite declaring a 30 percent jump in first-quarter profit last month, the company’s free cash flow fell short of the $18.75 billion dividend obligation for that period which forced the state-owned company to raise cash to help fund its commitment to pay out $75 billion in dividends, a pledge Aramco made to drum up support for its initial public offering.
The spread of the coronavirus and widespread lockdowns curbing demand for oil last year, caused the price of Brent crude to plunge to just below $16 a barrel at one point in 2020, the lowest since 1999. That prompted Aramco to reduce spending, cut jobs and sell non-core assets.
Aramco has recently become a regular bond issuer after its debut $12 billion issuance in 2019 was followed by an $8 billion, five-part transaction in November last year, also used to fund its dividend.
Aramco’s oil revenue accounts for about 40% of Saudi Arabia’s gross domestic product and the recent increase in crude prices may drive this even higher, Bloomberg Intelligence analysts say. Saudi Arabia’s plans to reduce its dependence on Aramco will be challenged by the nation’s fiscal deficit, they said.
