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Despite concern from some investors that Saudi Aramco is basically the Kingdom of Saudi Arabia, the oil giant’s debut U.S.-dollar bond has attracted orders for more than US$100 billion—the highest demand for an emerging market bond ever, Reuters reported on Tuesday, hours before Aramco was set to price the bond.
Saudi Aramco was expected to raise US$10 billion with its first-ever international bond, and is expected to price the six-part bond issue later on Tuesday. Aramco’s bond issue is divided into six tranches—of 3, 5, 10, 20, and 30 years, and a three-year floating rate bond.
The high demand for the oil company’s bond shows strong investor appetite, despite warnings from analysts and concerns of some investors that Saudi Arabia’s government will continue to exert influence on Aramco’s operations, production, tax rates, and dividends.
The record-breaking demand for the bond could be seen as a measure of interest in Aramco’s initial public offering (IPO), which has been postponed numerous times, but which Saudi Arabia currently claims is on track to take place some time in 2021.
However, analysts see potential equity investors—if an IPO indeed takes place in the coming years—more concerned about the strong linkage between the Saudi government and Saudi Aramco than bond investors in the current bond issue. Potential shareholders in Aramco could be anxious that the Saudis would favor returns to the government from the company’s operations rather than thinking of returns to equity investors.
Early last week, Aramco received high first-time credit ratings from Fitch Ratings and Moody’s before the launch of the international bond.
But both Fitch and Moody’s—while praising the oil giant’s strong balance sheet, a very conservative financial profile with low debt, low costs of production, and strong profitability—noted that their respective ratings are capped by the very close linkage between Aramco and the government of Saudi Arabia. Aramco’s rating would have been higher were it not for the close link between the company and the government, the rating agencies said.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.