Saudi Arabia’s state-run oil giant, Saudi Aramco, has commenced the sale of a second round of international bonds, just two months after successfully raising $6 billion. This latest move is part of the kingdom’s broader debt strategy for the year.
Details of the Bond Sale
According to a statement on the Saudi stock exchange, Aramco has mandated banks for the latest issuance of dollar-denominated sukuk bonds, which are securities compliant with Islamic finance principles. This marks a continued effort by the company to tap into international markets for funding.
Funding Economic Diversification
The Saudi government and state-linked companies have been borrowing extensively to finance projects aligned with Crown Prince Mohammed Bin Salman’s ambitious economic diversification initiatives. Aramco is central to these plans, with the state relying heavily on its dividends to help address an anticipated budget deficit.
Strong Demand and Past Performance
In July, Aramco conducted its first dollar-debt sale in three years, which saw robust demand, with final order books exceeding $23 billion. The company also sold 40-year bonds during that sale, likely intending to refinance existing borrowings and support its investment program.
Impact of Oil Market Fluctuations
Aramco has faced challenges this year due to lower oil production and fluctuating prices. Brent crude has fallen approximately 3% year-to-date, trading around $75 a barrel, raising concerns about sluggish demand in China. In response, OPEC+, the producers’ group led by Saudi Arabia alongside Russia, has restricted output to stabilize the market.
Dividend Obligations and Financial Strategy
Aramco is expected to distribute $124 billion in dividends this year, including a special payout. Recent distributions have exceeded the company’s free cash flow, signaling the need for additional debt issuance to sustain current dividend levels.
Appointment of Bookrunners
For this bond sale, Aramco has appointed several banks as bookrunners, including Al Rajhi Bank, Citigroup Inc., JPMorgan Chase & Co., and Standard Chartered Plc, according to the official statement.
Conclusion
As Saudi Aramco continues its bond issuance, the company is navigating a complex landscape of market fluctuations and fiscal demands. The success of this latest round will be crucial in maintaining its financial commitments while supporting Saudi Arabia’s broader economic objectives.
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