Saudi Aramco Seeks Multi Tranche Bond Deal to Cushion Impacts of Low Oil…

While the bond issuance is deemed necessary, it has caused rating agency Fitch to revise its stand on Saudi Aramco from stable to negative.

Saudi Arabian multinational petroleum and natural gas company Saudi Arabian Oil Co (TADAWUL: 2222) also known as Saudi Aramco is seeking out a multi-tranche bond deal as a means to raise funds to beat the impacts of continuous dip in oil prices. As reported by Reuters, the Saudi Oil sovereign company is seeking out this debt instrument through the help of a consortium of banks, in what the report describes as a dollar-dominated bond issuance.

The impacts of the coronavirus pandemic are far from being over as multinational firms around the world continue to bear the economic brunts it ushered in. The oil industry in particular has been plagued with below-par oil prices on the international market, a situation which is further worsened by the fluctuations it brings. While the Saudi Aramco oil behemoth serves the Saudi Arabian economy, a deep fund cushion is pertinent to maintain its core operational goals.

The bond issuance from Saudi Aramco will involve a coalition of banks including JPMorgan Chase & Co (NYSE: JPM), Goldman Sachs Group Inc (NYSE: GS), Citigroup Inc (NYSE: C), Morgan Stanley (NYSE: MS), NCB Capital, Societe Generale, Bank of Amerca Securities, and about seven other banks and financial institutions. These banks were contracted to help arrange investor calls ahead of the scheduled transaction according to the bond issuance filing made by the company.

The details about the bond issuance with respect to the amount of the bond are yet unknown but as a multi-tranche deal spanning 3 years, 5 years, 10 years, 30 years, and 50 years with the total bond value issued in each tranche not less than $500 million each according to Reuters. The funds billed to be raised from this bond issuance is expected to help correct the 45% dip in revenue in the third quarter moving forward.

Necessity to Issue Saudi Aramco Bond Caused a Low Fitch Rating

Raising funds through debts measures like the bonds, Saudi Aramco is set to perceive as an extreme measure for the firm to raise funds, both to pay the accrued $37.5 billion in dividends for the second half of 2020 and to fund its $69.1 billion acquisition of a 70% stake in Saudi Basic Industries Corporation SJSC (TADAWUL: 2010). The firm has a plan to fund the latter acquisition from now through 2028.

While the bond issuance is deemed necessary, it has caused rating agency Fitch to revise its stand on Saudi Aramco from stable to negative. The Fitch rating reportedly came following the agencies previous bearish outlook on Saudi Arabia as a nation and noted that:

“This reflects the influence the state exerts on the company through strategic direction, taxation, and dividends, as well as regulating the level of production in line with OPEC commitments.”

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