Saudi Aramco’s $12 Billion Issue Commands Low Yields

Aramco hits up the bond market as excitement around potential IPO fades.

Saudi Arabia’s state oil company, Saudi Aramco, sold $12 billion of dollar-denominated bonds in various maturities in an April 11 sale that attracted more than $100 billion in bids. The bonds were sold at yields similar to those of the country’s sovereign bonds.

“There are lots of reasons to explain the low level of yields, not least the healthy finances of Aramco,” says William Jackson, chief emerging markets economist at Capital Economics. The bond prospectus revealed that Aramco was by far the world’s most profitable company last year, with $111 billion of earnings.

“The low yields also reflect expectations for a likely inclusion of Aramco’s bonds in various indices,”Jackson says. “It’s not, otherwise, clear why there would be no Aramco risk premium vis-à-vis the sovereign—the government can, after all, raise taxes on Aramco if it wants to improve its own finances.”

The end could be near for the Saudi kingdom’s highly anticipated public offering of a 5% stake in the company, which has already been postponed until 2021 at the earliest. The recent announcement that Aramco has reached a deal to acquire a 70% stake in Saudi chemical manufacturer Saudi Basic Industries Corp. (SABIC), adds to the reasons to believe that a proposed IPO of Aramco is “going nowhere quickly,” according to Jason Tuvey, senior emerging markets economist at Capital Economics in London.