World’s biggest oil firm Saudi Aramco kicks off jumbo bond sale

Saudi Aramco kicked off a jumbo bond sale Tuesday to help fund a $75 billion dividend, returning to the debt markets for the first time since April of last year.

The state energy firm is raising debt after slumping crude prices caused profit to fall by 45% in the third quarter. That's left it unable to generate enough cash to fund investor payouts, almost all of which go to the Saudi Arabian government, which needs the money to plug a widening budget deficit and prop up a slumping economy.

Aramco, the world's biggest oil company, is selling a five-part dollar deal, with tranches maturing in three, five, 10, 30 and 50 years, according to a person with knowledge of the matter. Initial spread guidance ranges from around 140 basis points above U.S. Treasuries on the shortest tranche, to plus 230 basis points for the 50-year portion, the person said.

The bond may be issued later on Tuesday.

The Dhahran-based firm may issue around $6 billion of bonds, Bloomberg reported Monday, which would be half the amount the company borrowed in its debut sale last year. That offering brought in more than $100 billion in orders,  making it one of the most oversubscribed deals in history -and allowed the oil giant to borrow at a lower yield than its sovereign parent.

Emerging-market investors have become more bullish in the past two weeks following the U.S. election and pharmaceutical companies making progress on coronavirus vaccines. That should help ensure strong demand for Aramco's deal, according to The Hague-based Aegon Asset Management, which manages around $400 billion.

"With the election behind us and recent positive news on vaccines, investor demand should increase and I would expect new issuance to be received very well," Aegon's head of emerging-market debt, Jeff Grills, said before Aramco started its offering.

The lead banks on the bond sale are Citigroup, Goldman Sachs Group, HSBC Holdings, JPMorgan Chase, Morgan Stanley and NCB Capital.

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