Demand for Saudi Aramco's debut bonds at over $50bn

Demand for Saudi Aramco's debut bonds at over $50bn

Demand for Saudi Aramco's debut bonds at over $50bn

Saudi Arabia's state-backed oil colossus has raised $12bn in a record bond market debut which secures the Kingdom's position among worldwide investors.

State-owned Aramco was expected to raise around $10bn from the deal, which will be priced later on Tuesday and is seen as a gauge of potential investor interest in the company's eventual initial public offering.

Khalid al-Falih told an energy conference in the Saudi capital on Monday that worldwide investors had so far made bids totalling three times the value of the bonds.

The massive demand for the Aramco bond sale also will prove a feather in Saudi Arabia's cap in its rivalry with Qatar, which is under economic blockade by the Kingdom and its allies, yet still managed a $12-billion bond sale of its own previous year.

"Purely on figures, it is a fantastic credit", said Damien Buchet, CIO of the EM Total Return Strategy, Finisterre Capital. "For equity investors this is always going to be an issue, more so than for bond investors". Which is just as well - it's better for Aramco to have an orderly issue this week to ensure a favorable reception for future deals.

"The link between the two however is understandably very strong", he said.

This ultimately means that Aramco has emerged as the most profitable Company in the World, bigger than Alphabet, Amazon and Apple combined!

Having made core earnings of $224bn past year and with $86bn in free cash flow at the end of 2018, Aramco does not need to borrow.

The initial yield over U.S. Treasury securities looks to be barely more than those available for the sovereign's dollar bonds.

Aramco has agreed to buy a 70 percent stake in SABIC from Saudi Arabia's sovereign wealth fund, known as the Public Investment Fund (PIF).

In a company presentation last week, however, the company said the deal will close in 2020.

Analysts said the worldwide bond had been created to help raise funds for a down payment on Aramco's $69.1bn purchase of a majority stake in Saudi petrochemicals firm SABIC, which was announced last month.

Falih is also chairman of state-owned Aramco, the world's largest energy company.

Many see the deal as a relationship building exercise with global investors ahead of its planned IPO, which was scheduled for past year but then postponed to 2021.

As part of its debut in the global debt market, Aramco has offered bonds in six portions, from three to 30 years, according to the people familiar with the matter, who asked not to be identified because the information is private. The offering also includes a three-year floating rate bond.

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