Investors confident in company
Lower oil prices impacting
Saudi Aramco’s $5 billion bond sale on Tuesday saw spreads tighten, suggesting a strong market appetite for the company’s debt despite falling oil prices.
The state-owned oil company sold bonds in three tranches.
A 5-year issue, which was priced at 80bps over US treasury bonds, tightened from its original 115bps guidance. The spread of a 10-year issue tightened from 130bps to 95bps, while a 30-year issue came down from 185bps to 155bps.
For comparison, a tranche of 10-year bonds and 30-year bonds sold last year were priced at 105bps and 145bps over US treasury bonds respectively, 10bps higher than the recent sale.
“The critical point is the strength of Aramco’s balance sheet, its ability to borrow, and the strong revenues that they’re getting,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“The bond is well timed at a point when markets have reversed some of their earlier sell off.”
The company is facing a drop in revenues amid the falling oil price. Brent crude closed at 64.09 on the New York Mercantile Exchange on Tuesday, with many institutions including Goldman Sachs predicting prices averaging as low as $56 through 2026.
The world’s largest oil producer, the Saudi government directly controls 81.5 percent of Aramco, with the kingdom’s sovereign wealth fund, the Public Investment Fund, controlling a 16 percent stake, and the remainder listed on the Saudi stock exchange.
Aramco’s net income in the first quarter dropped 4.6 percent to $26 billion, with analysts predicting earlier this month that the worst might be yet to come for Aramco.
In its recent earnings report Aramco confirmed that it would essentially cut the performance related dividend, potentially saving the company $40 billion in 2025.
Despite low oil prices, however, it has also signalled its intention to maintain capital expenditure, with suggestions it may sell off infrastructure assets to keep up spending.
With oil prices down, the Tadawul All-Shares Index, which tracks the main market of the Saudi Stock Exchange, dropped to an 18 month low on Tuesday.
Aramco, which accounts for around 60 percent of the total market capitalisation, has seen its share price drop nearly 10 percent since the start of the year.
