Following some levels of disinterest shown by Wall Street and international investors last year, Saudi Arabia again stunned analysts and investors after it announced that it had received more than $100 billion in orders for the maiden global bond for its oil giant Aramco.
This incident is amongst the a handful few of companies managing to get more than $100 billion in bids for a debt offer ever in the world. It is also arguably the largest-ever in emerging markets. This also clearly shows the demand for yield among investors amidst a scenario where negative interest rates are being currently attached to bonds from some developed nations — and even companies.
The financial strength of the largest and the most profitable oil company of the world is highlighted by the anticipated low pricing and strong order book. Analysts expect that the Aramco bond yield would be lower than the sovereign debt of Saudi Arabia. That trend is quite unusual for a state-owned company, said analysts.
Anthony Peters, a strategist at Blockex Ltd. In London said that “the market shows no signs of wishing to balk at the latent political risk attached to Saudi.”
The sale is expected to generate cash to the tune of about $10 billion to $15 billion and the company now has the option to go even higher in its target sale because of the strong demand.
To put things in perspective, orders in excess of $100 billion were drawn in by CVS Health Corp., Anheuser-Busch InBev NV and Verizon Communications Inc., but at least $40 billion was borrowed by each for their respective M&A deals.
The longer-dated, highest-yielding bonds of Aramco received the strongest demand which also shows that investors are placing a bet on Saudi Arabia and its oil revenues till about the year 2050. Pension funds and insurance companies generally seek to invest in longer-dated bonds because they want to match the duration of their assets and liabilities.
Experts and analysts view this plan by the Saudi government to use Aramco to raise money as an alternative plan of the kingdom to be able to raise money for it economic agenda and its planned economic diversification by 2030, following the postponement of the initial public offering of Aramco. This also shows that the pristine balance sheet of the state oil producer is being used to finance the ambitious economic reform plans of the Saudi Crown Prince Mohammed bin Salman, who is the de-facto leader of the country and manages the day-to-day activities and policies.
Saudi Aramco has received orders worth $100 billion for its debut bond sale.
(Adapted from Bloomberg.com)