Saudi Aramco bond sale to close Wednesday: minister

A view of the Haradh gas plant located at the southern tip of the Ghawar oil field which is the largest conventional oil field in the world

A view of the Haradh gas plant located at the southern tip of the Ghawar oil field which is the largest conventional oil field in the world

Before the six-part bond deal was marketed on Monday, Saudi energy minister Khalid al-Falih said initial indications of interest for the paper were over $30 billion.

Demand for the paper was the largest for emerging markets bonds since an order book value of more than $52 billion for Qatar's $12 billion bonds a year ago.

Given the opportunity investors have for a more direct claim on the oil company's assets than they do with the sovereign, and the issuer's lack of debt, the size of the order book will nearly certainly build.

Saudi Aramco was revealed to be the world's most profitable company last week, with account information released ahead of the bond issuance showing revenues of $224 billion, and a net income of $111.1 billion, more than that of USA tech and energy giants Apple, Google and Exxon Mobil combined.

Having made core earnings of $224 billion previous year and with $86 billion in free cash flow at the end of 2018, Aramco does not need to borrow.

With strong demand, Aramco told investors it expects to pay about 1.25 percentage points more than U.S. Treasuries for its 10-year notes, compared with Saudi sovereign bonds trading at about 1.27 percentage points.

"They are clearly trying to price it (the bond) off existing AA corporates in this world, so people are looking at curves like Shell, Total, Exxon but also technology giants like Apple", said Buchet.

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The sale highlights the kingdom's continued commitment to its economic reform plans and is part of a fundraising strategy by Saudi Aramco to help fund its recent purchase of a $69.1 billion stake in Saudi Arabian Basic Industries Corp.

The order book for Aramco expanded from about $40 billion when the deal kicked off, people with knowledge of the deal said.

"Oil majors are more advanced in their efforts to further vertical integration, but national oil companies are catching up", Fitch Ratings wrote in a comment on the SABIC acquisition.

The anticipated low pricing and strong order book underscores the financial strength of the world's largest - and most profitable - oil company.

Many see the deal as a relationship building exercise with global investors ahead of its planned IPO, which was scheduled for a year ago but then postponed to 2021. The bonds, which range in maturity from three to 30 years, are expected to attract demand from both emerging markets and investment-grade buyers. The banks not only want to participate on the bond sale, but also ensure they're well placed in case the kingdom goes ahead with an initial public offering for Aramco.

And from a purely investment standpoint, financial analysts seem to think that hitting the debt market makes more sense for Aramco than an initial public offering, which has been in the works for some time and much-delayed over issues of transparency and valuation.

Morgan Stanley and JP Morgan are joint global coordinators.

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