Investors flock to Saudi Aramco's debut worldwide bond

Investors flock to Saudi Aramco's debut worldwide bond

Investors flock to Saudi Aramco's debut worldwide bond

The bond sale by energy giant Saudi Aramco has attracted record demand of $85 billion from investors, one hour before bidding closed, a banking source told AFP.

Demand for the paper was the largest for emerging markets bonds since an order book value of more than $52 billion for Qatar's $12 billion bonds past year.

Saudi Aramco's debut worldwide bond issuance has generated over $85 billion-worth of orders from investors, Bloomberg has reported.

The $30bn figure would represent an oversubscription of three times the size of the bond, if Aramco sticks to its plan to issue around $10bn in the debt sale, due this week.

"Aramco is more transparent, has stronger credit metrics and is on an improving ESG (environmental, social and governance) trajectory whereas the government is more complex", said Mohieddine Kronfol, chief investment officer of Global Sukuk and MENA Fixed Income at Franklin Templeton Investments.

Sergey Dergachev, functional head of EM corporate debt at Union Investment, said he expected the bond to have four tranches of three, five, 10 and 30 years and to range between $10-billion and $15-billion in size.

Saudi Aramco was revealed to be the world's most profitable company last week, with account information released ahead of the bond issuance showing revenues of $224 billion, and a net income of $111.1 billion, more than that of U.S. tech and energy giants Apple, Google and Exxon Mobil combined.

Having made core earnings of $224bn a year ago and with $86bn in free cash flow at the end of 2018, Aramco does not need to borrow. And later in the bond market itself, where the Saudi government successfully raised debt this year.

"They are clearly trying to price it (the bond) off existing AA corporates in this world, so people are looking at curves like Shell, Total, Exxon but also technology giants like Apple", said Buchet.

The main question now is whether Aramco even needs to go public, or whether the unusual acquisition of a almost 70-percent stake in Saudi Arabia's Sabic petrochemicals giant means it's sidelined IPO plans altogether.

Pension funds and insurance companies in the United States and Taiwan are traditionally interested in investing in long-dated securities to match their own long-term commitments.

Fitch ratings agency said last week that based on information received from Aramco, its planned initial public offering (IPO) still stands and is likely to take place in 2021.

Neither banks nor investors appear to have been deterred from participating in the high-profile deal, despite initial displays of outrage from companies such as JPMorgan over the death of Khashoggi in the Saudi consulate in Istanbul. It said it will pay for most of the SABIC purchase in cash.

Aramco has hired Lazard as financial adviser for the bond deal.

Morgan Stanley and JP Morgan are joint global coordinators.

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