The Aramco IPO saga continues, with the Saudi oil giant soon to enter the international financial markets for a $50 billion loan. International sources are reporting that the world’s largest oil company will look for around $50 billion from international banks, largely to be used to finance a majority stake in Saudi Basic Industries Corporation (SABIC).
International banks have been approached by Aramco in the last couple of weeks, as the state-owned oil giant is looking to acquire a majority stake, currently held by the Saudi sovereign wealth fund Public Investment Fund (PIF).
SABIC holds a market value of around $100 billion at present. The Saudi PIF holds a 70 percent stake in SABIC, which would mean that Aramco would need to finance the rest from its own reserves, which are an estimated $20 billion. The statements come just shortly after Aramco’s CEO Amin Nasser reiterated that his company is still committed to the IPO.
It is still not clear when the financing is going to take place, but financial sources expect that it will be end of 2018 or beginning of 2019. Saudi sources have stated that no banks have been mandated for the financial package deal, even though U.S. banks JP Morgan and Morgan Stanley have been asked to advise on the acquisition. In addition to its cash holdings, which have increased substantially in the last couple of months, Aramco is slated to be looking at a combination of a large, long-term syndicated loan and short-term, bridge loans that would be replaced after about 12 to 18 months with bond issues, for the $50 billion.
As the media has already reported, Saudi Arabia is sure to try and set up the deal via bonds, as it is looking to expand its bond market. International interest is already growing, but could be given a boost by the new deal. It remains unclear how far Aramco will be able to put an international bond sale in place as such a deal would require a credit rating and necessitate the disclosure of financial information in a prospectus. These details have, until now, been very hard to obtain as the company (and the Kingdom) are very wary of divulging it to the press or international investors.
At the same time, as we all know, the Aramco IPO proposal has been put on hold due to transparency and data information issues. Hence the eagerness by Aramco (and its stakeholders - aka the Royal Family) to approach the deal as a normal bank loan first.
However, for international banks the $50 billion loan might not be very tempting, as Aramco could be pricing its debt on a par with the government, demanding ultra-thin margins.
The reality, however, is sure to be different. When asked by Aramco, the majority of international banks will be more than willing to issue the loan. The opportunity to have the world’s largest oil company on your list of clients is tempting. Banks know that taking part in this may be a commercially less interesting loan, but future mandates for capital market transactions will be up for grabs.
For Aramco, the acquisition (and possible merger) of SABIC is a significant aim. Not only will the acquisition form a giant integrated oil company, it will also open the posibility of a continuation of the IPO saga. The decision to change the first IPO plan to a downstream Aramco IPO is a real possibility, presenting no real issues to Aramco with regards to transparency or reserve valuations.
The time is right for a debt deal, as the attractiveness of Saudi Arabia is increasing along with oil prices. In September, the Saudi SWF raised $11 billion at the same pricing point as the Kingdom’s sovereign debt. After the inclusion into the FTSE and MSCI Emerging Markets Index, JP Morgan has also considered including the Kingdom on in its very own JP Morgan Bond Index. This fund is slated to bring another influx of cash to the Kingdom of around $11 billion. It now seems that Saudi Crown Prince Mohammed bin Salman’s target of reaping around $100-150 billion from the Aramco IPO is superfluous. Without taking the goose with the golden eggs to the market (Aramco), his strategy to attract investment interest in the Kingdom is already bringing rewards. A possible Aramco (SABIC) IPO will be yet another vicrtory for Saudi Arabia without the downsides involved in the orignal IPO plan.
Also published on oilprice.com
