Home GCC Saudi Arabia Aramco turns to bonds to help fund $75bn dividend The yield on Aramco’s $3bn of bonds due in 2029 has dropped to 2.09 per cent from 3.04 per cent at the start of the year by Bloomberg November 16, 2020 Saudi Aramco, the world’s biggest oil company, is set to return to the bond markets for the first time since April of last year as it seeks to fund a $75bn dividend commitment. Aramco, which hired banks including Goldman Sachs Group for the sale, needs to raise debt after slumping crude prices caused profit to fall by 45 per cent in the third quarter. That’s left it unable to generate enough cash to fund the investor payouts, almost all of which go to the Saudi government, which needs the money to plug a widening budget deficit. The company could raise about $6bn, according to two people familiar with the deal. Aramco media officials didn’t immediately respond to requests for comment. Aramco has slashed spending, cut jobs, and is considering selling some assets. Despite these efforts to conserve cash, its gearing – a measure of debt as a percentage of equity – has increased to 21.8 per cent, above its target range of 5 per cent to 15 per cent. Gearing also rose because the company took on debt to pay for its $70bn acquisition of Saudi Basic Industries Corp., a chemical maker, earlier this year. “The challenge for the issue should not be demand, given the search for yield in such a low local and global interest-rate environment,” said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer, a research firm specialising in emerging markets. “But low oil prices for longer, which means lower cash generation, must surely be reflected in tougher pricing for Aramco.” The yield on Aramco’s $3bn of bonds due in 2029 has dropped to 2.09 per cent from 3.04 per cent at the start of the year. That’s only slightly higher than the government’s equivalent securities, which trade at 2 per cent. The state-controlled energy firm, which sold shares on the Saudi stock exchange last year, will hold calls with fixed-income investors starting from Monday, according to a statement. A dollar deal with tranches maturing in three, five, 10, 30 and 50 years may follow, depending on investor demand. Aramco would look at using “all the instruments available to us,” to meet its dividend pledge, chief executive officer Amin Nasser said in June. The company already drew down a $10bn loan in July to help plug the funding gap. Its free cash flow in the first nine months of the year was $33.5bn – more than $20bn short of what it declared in dividend payouts for the period. While crude prices have recovered from their March lows to around $44 a barrel, they’re still down 34 per cent this year. Unless prices rise further, the government may not be able to rely on the annual dividend of almost $75bn beyond next year, Moody’s Investors Service said last month. Aramco pledged to make the payout for at least five years after its listing. Aramco’s debut bond sale last year raised $12bn and was one of the most oversubscribed debt offerings in history, attracting more than $100bn in investor orders. The other banks chosen by Aramco as active bookrunners for the new deal are Citigroup, HSBC Holdings, JPMorgan Chase & Co., Morgan Stanley and Riyadh-based NCB Capital. Tags bond dividend funding investors Saudi Aramco Yield 0 Comments You might also like Saudi Aramco allocates $100m to boost R&D at KAUST Aramco CEO expects demand growth of 2 million bpd in second half Saudi Aramco Q2 profit drops 3.4% on lower volumes, refining margins IPO appeal: 84% of UAE investors likely to invest in future offerings