Saudi Arabian Oil Co, the world’s largest oil producer, picked four banks to advise on its first bond sale, two people familiar with the matter said, ahead of the world’s largest initial public offering.
Saudi Aramco, as the company is known, selected HSBC Holdings’ local unit and Riyad Capital to help with the sale of riyal-denominated Islamic bonds, or sukuk, before the end of June, said the people, asking not to be identified as the information is private.
NCB Capital Co and Alinma Investment Co are also working on the deal that could be followed by the sale of dollar-denominated bonds, two other people said. The sukuk is part of Aramco’s plans to raise as much as $10bn in bonds this year, one of the people said.
Aramco and HSBC Saudi Arabia declined to comment, while Riyad Capital, NCB Capital and Alinma Investment didn’t respond to requests.
Aramco is selling bonds as it prepares for a share sale in 2018 and follows the Saudi Arabian government’s debut offering in October which raised $17.5bn in the biggest-ever emerging-market sale. Middle East and North African countries sold almost $80bn of bonds last year, the most since Bloomberg started compiling data in 1999, as governments finance budget deficits brought on by lower oil prices and companies struggle with tight liquidity.
Saudi Arabia plans to sell less than 5% of Aramco as part of plans by Deputy Crown Prince Mohammed bin Salman to set up the world’s biggest sovereign wealth fund and reduce the economy’s reliance on hydrocarbons. The company asked banks including Goldman Sachs Group and HSBC to pitch for an advisory role on the IPO last month, people said at the time.
Aramco’s estimated IPO size of $100bn would make it the largest ever, dwarfing the $25bn raised by Chinese Internet retailer Alibaba Group Holding in 2014.
Oil giant to borrow up to ‘6bn riyals with domestic bond’
A planned domestic sukuk issue by oil giant Saudi Aramco is likely to be in the region of 3bn to 6bn riyals ($800mn to $1.6bn), Saudi Arabia-based debt capital market bankers said yesterday.
It would be the first sukuk issue by the state entity, which plans to approach the local investor base first and offer US dollar-denominated sukuk to international investors at a later stage, the bankers said, declining to be named because the matter is not yet public.
The sukuk are expected to be issued over the next two to three months, said the sources, adding however that the company and the banks arranging the transaction had not yet issued any official communication on the timeline.
Saudi Aramco declined to comment.
The bond proceeds will be used to finance “new expansion projects”, said a banker familiar with the matter.
Early last year, Aramco’s board approved the creation of a programme to issue sukuk, according to the company’s official magazine, Arabian Sun.
The company is considering expanding its oil and gas production facilities at the Berri oilfield, a project which could cost approximately $1.7bn, sources told Reuters this month.
Among other projects, it is developing with partners a huge ship repair and shipbuilding complex at Ras al-Khair on the east coast.
Officials have said that project will cost over 20bn riyals.
Alinma Investment, HSBC Saudi Arabia, NCB Capital and Riyad Capital have been appointed lead managers for the planned sukuk issue, said one of the sources.
Saudi Aramco plans to sell up to 5% of its shares in next year in what would be the world’s biggest initial public offer.
The international sukuk issue is unlikely to happen before the IPO, the sources said.
“An international bond would require a lot of disclosure in the bond prospectus,” said one of them, adding that domestic bonds would be bought by the local investor base without much questioning.
The Saudi government has suspended its own issues of domestic bonds since last October, reducing pressure on liquidity in the banking system and leaving more room in the local debt market for an issue by Aramco.
After years of reliance on oil income, low oil prices have pushed Gulf Arab governments and companies to issue debt.
The Saudi government sold a mammoth debut international bond of $17.5bn last October and plans to make an international sukuk issue this year, according to several bankers.
Attendees walk by a sign for the Saudi Arabian Oil Co (Aramco) on display inside the King Abdulaziz Center for World Culture during a tour of the project in Dhahran on November 25, 2016. Aramco is selling bonds as it prepares for a share sale in 2018 and follows the Saudi Arabian government’s debut offering in October which raised $17.5bn in the biggest-ever emerging-market sale.