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Saudi Aramco, the Kingdom’s state oil giant, has signed a $10 billion loan with 27 financial institutions, it said on Monday, taking advantage of favourable market conditions to securing better borrowing terms.
The loan will replace an existing $4 billion facility due to mature later this year, the statement said, and is the latest example of companies in the Gulf region using the high amount of cash in the local banking system to lower their funding costs and increase the lifespan of their lending.
It is also reflective of a trend among the world’s top oil companies, which raised a record amount of debt in the first two months of 2015 as they used ultra-low borrowing costs to prop up dividends, balance sheets and acquisition funds.
The statement confirmed a Reuters story from March 12 that said Aramco was close to finalising a tightly-priced deal, which bankers speculate could also be used to fund a bid for a stake in German synthetic rubber firm Lanxess.
Aramco’s new revolving credit agreement is denominated in both U.S. dollars and Saudi riyals and is a standby loan, the world’s biggest oil exporter said in its statement, meaning the cash will only be taken up when the company needs it.
The dollar portion totals $7 billion. This includes a $6 billion five-year piece that has an option to be extended by a year on two occasions and will pay an interest rate of 12 basis points (bps), the document showed.
The remainder consists of a $1 billion 364-day facility paying 10 bps, which is renewable annually. The statement didn’t disclose how many times the cash could be rolled over.
There is also borrowing worth SAR11.25 billion ($3 billion) structured as a sharia-compliant murabaha — a cost-plus-profit agreement where one party agrees to buy merchandise for another, which promises to buy it at an agreed mark-up, and which gets around Islamic finance’s ban on charging interest.
Of this, SAR7.5 billion has the same five-year lifespan with extension options, with SAR3.75 billion lasting for 364 days and also having an annual renewal option. They pay a profit rate of 11 bps and 9 bps respectively.
“This pricing sets a benchmark in the kingdom and the region and reflects the banking community’s continuing confidence in Saudi Aramco and Saudi Arabia,” the company said in the statement.
Among the banks to back the dollar-denominated tranches were Bank of China, Bank of Tokyo-Mitsubishi, Citigroup, Deutsche Bank, HSBC, JP Morgan, Standard Chartered, and Sumitomo Mitsui Banking Corporation.
Eight Saudi lenders participated in the local currency facilities, including Alinma Bank, National Commercial Bank and Riyad Bank.