Aramco could be tapping debt markets again to keep $75b dividend promise

Aramco could be tapping debt markets again to keep $75b dividend promise

Create your Web Presence with Namecheap5618 Aramco could be tapping debt markets again to keep $75b dividend promise

Saudi Aramco will be picking up some debt again, but the situation is quite different from its record setting $12 billion bond last year.
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Riyadh: 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 $75 billion dividend commitment.
Aramco, which hired banks including Goldman Sachs Group Inc. 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 $6 billion. 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 5-15 per cent. (Gearing also rose because the company took on debt to pay for its $70 billion acquisition of Saudi Basic Industries Corp., a chemical maker, earlier this year.)

Reflect weak oil prices

“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 specializing 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 $3 billion 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 November 16, 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.

Already chipping away

The company already drew down a $10 billion loan in July to help plug the funding gap. Its free cash flow in the first nine months of the year was $33.5 billion – more than $20 billion 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 $75 billion 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 $12 billion and was one of the most oversubscribed debt offerings in history, attracting more than $100 billion in investor orders.

20200221101654 Aramco could be tapping debt markets again to keep $75b dividend promiseaff i?offer id=2792&file id=192733&aff id=6414 Aramco could be tapping debt markets again to keep $75b dividend promise
Original news source Credit: gulfnews.com



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