Saudi Aramco could issue its first ever international bonds as early as next week for about $10 billion to help fund the acquisition of petrochemicals giant Sabic, according to people with knowledge of the matter.
The deal is highly anticipated because it will require the state-run oil giant to lay open its accounts to investors for the first time since nationalization roughly four decades ago. It may also have to make public details about oil reserves and operations.
The world’s biggest oil producer said on Wednesday it will buy a majority stake in Sabic from the kingdom’s sovereign wealth fund for $69.1 billion, paying 123.4 riyals a share for the 70 percent stake. The Middle East’s biggest ever deal will help Aramco move away from its core oil business into the chemicals that are the building blocks of plastic goods.
The bond, likely to be combined with bank loans, would allow state-owned Aramco to pay the kingdom’s sovereign wealth fund for its Sabic stake. Aramco may stagger payments for the Sabic acquisition, offering flexibility in how to finance the deal, Energy Minister Khalid Al-Falih said in January. In turn, the Public Investment Fund would obtain the money it had originally hoped to raise from an Aramco IPO.
PIF will be using the funds to propel the kingdom’s efforts to diversify away from oil and transform its economy. The wealth fund has invested in U.S. firms such as Tesla Inc. and Uber Technologies Inc. and made an initial $45 billion commitment to SoftBank Group Corp.’s Vision Fund.
A spokesman at Aramco declined to comment. The Wall Street Journal first reported the timing of the bond issue.
Aramco’s interest in Sabic rests partly on projections that demand for petrochemicals will account for a rising share of global crude output. Petrochemical use will increase faster than for any other segment of the oil industry, according to the International Energy Agency. Aramco, known formally as Saudi Arabian Oil Co., wants to convert 3 million barrels of crude a day — about 30 percent of its daily output — into chemicals.
Aramco has lots of room to borrow as there’s hardly any net debt, accounts seen by Bloomberg for the first half of 2017 show. At that time, the company had about $20 billion of borrowings, offset by $19 billion of cash and equivalents.
The oil behemoth has largely avoided bond markets, relying almost exclusively on its own cash or bank loans. The closest it came was when it raised 11.25 billion riyals ($3 billion) in a debut local currency Islamic bond sale. The prospectus for the 2017 offering didn’t include any financial information, according to a copy of the document reviewed by Bloomberg News.
Originally published on www.bloomberg.com