In $10 Billion Debt Push, Saudi Aramco To Price Islamic Bond

As Saudi Arabian Oil Co. presses ahead with plans to raise $10 billion in debt, the company has set final pricing for its debut Islamic bond, reported the media  quoting a person with knowledge of the matter.

The person said, asking not to be identified as the information is private, said that debt is being sold with a seven year tenure in a private placement at 25 basis points over the country’s interbank offered rate by Aramco, as the world’s largest oil producer is known.

People with knowledge of the matter were quoted earlier this month that under a 37.5 billion-riyal ($10 billion) sukuk program, the company is seeking to raise about $2 billion in its debt sale of Islamic bonds.

According to estimates by Sanford C. Bernstein & Co the valuation of the company would by potentially raised to more than $1 trillion as the country’s finance ministry plans to cut taxation on the company and as the oil giant is selling debt ahead of an initial public offering in 2018. Bernstein analysts said that putting per-barrel income in a range similar to that of international oil companies including Exxon Mobil Corp., the cut will boost Aramco’s net income by 300 percent.

Assuming a long-term oil price of $75 a barrel, its valuation of Aramco was raised by 250 percent to $1.4 trillion by Rystad Energy AS, an Oslo-based consulting company. Brent crude, the global benchmark, rose 0.4 percent to $51.55 a barrel by 10:01 a.m. in London.

The person said that the hybridriyal riyal Islamic bond, which is expected to close on April 3 are being arranged by Alinma Investment Co., GIB Capital, HSBC Holdings Plc., NCB Capital, Riyad Capital, Samba Capital and Saudi Fransi Capital.

Aramco’s sukuk follows Saudi Arabia’s $17.5 billion bond issue in October, which was the state’s debut international debt sale, as well as the biggest-ever dollar bond from an emerging-market issuer.

To help boost the country’s Islamic bond market, Saudi Arabia is also said to be planning a sale of riyal dominated Islamic bonds to local institutions. According to data compiled by Bloomberg, with five denominated in riyals, six sukuk issues in the nation raised $1.8 billion in 2016, with five of them denominated in riyals. $7.8 billion from 14 sukuk sales last year was raised by the United Arab Emirates, the second-biggest Arab economy.

As it prepares to offer investors as much as 5 percent of the world’s biggest oil exporter in what could be a record IPO, the Saudi government announced Monday that it’s reducing Aramco’s tax rate to 50 percent from 85 percent. There is wide variation in estimates of Aramco’s potential valuation. It is worth about $2 trillion,  Deputy Crown Prince Mohammed bin Salman has said. And according to clients who attended a private briefing earlier this year, the company was valued at around $400 billion by consultant Wood Mackenzie Ltd. prior to the tax change.

(Adapted from Bloomberg)


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