Saudi Aramco, the kingdom’s state oil giant, is close to completing a $10 billion tightly-priced loan, banking sources said on Thursday, part of which could be used to back the purchase of a stake in German synthetic rubber firm Lanxess.
The cash replaces an existing $4 billion five-year loan due to mature later this year which Aramco, the world’s biggest oil exporter, uses as a back-up facility. The deal should conclude by the end of the month, said two of the sources.
Aramco didn’t immediately respond to a request for comment.
Banks pledging to fund the upsized facility have been told that, unlike the previous loan which remained untapped, this could be used in coming months.
Lanxess is in talks with Russia’s NKNK and Aramco to sell a stake in its tyre rubber business, people familiar with the matter told Reuters last month.
“They have always been very clear that they wouldn’t draw on the facility, which has allowed them to drive a hard bargain on pricing, but they have said this time that they may draw when needed,” said one banker working on the transaction, speaking on condition of anonymity as the information isn’t public.
Despite the increased size and the possible usage, pricing on the new loan is expected to come inside the previous loan which paid between 13 basis points and 16 basis points, depending on the tranche, according to the banking sources.
The structure of the deal is the same as the previous one: two dollar-denominated portions and two in riyals, with one in each currency of five years duration and one which lasts for one year but which can be rolled over upon maturity for a further year four times.
“Aramco is a first-tier borrower in Europe and the U.S. and the deal is doing very well as you would expect,” said a second banker.
Despite the tight pricing and the fact that Aramco, according to the first banker, is asking banks to commit either $200 million, $300 million or $700 million or the equivalent in riyals, the transaction is expected to attract more than the overall figure asked for.
This is a reflection of the liquidity in the Middle East market and the strength of Aramco as a borrower. Such a result was seemingly not in doubt as not all the banks involved in the last financing were invited to participate in the new loan.
“We waited for an invite but it didn’t arrive,” a third banker said. “They are obviously confident they can get a lot of money cheaply,” he said.
The 2010 deal involved 29 local and international banks including bookrunners BNP Paribas, Bank of Tokyo-Mitsubishi, Citigroup, HSBC, JP Morgan, Riyad Bank and Saudi British Bank.