Saudi Aramco Raises $3 Billion in Second Debt Sale Since July

Photo : Reuters

Saudi Aramco, the state oil giant of Saudi Arabia, has successfully raised $3 billion through a two-part issuance of Islamic bonds, known as sukuk. This marks Aramco's second foray into the debt markets this year, as the company aims to bolster its financial position to meet anticipated substantial dividend payments, primarily to the Saudi government.

On Wednesday, Aramco sold $1.5 billion in five-year sukuk with a spread of 85 basis points over US Treasuries and an additional $1.5 billion in 10-year Islamic bonds at a spread of 100 basis points above the same benchmark. These terms were tighter than initial guidance, reflecting strong investor demand, according to sources familiar with the transaction.

The Saudi government holds a significant 81.5% stake in Aramco, with the Public Investment Fund owning another 16%. The company aimed to raise up to $3 billion, as reported by Reuters prior to the sale.

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This latest debt issuance follows a successful $6 billion three-tranche bond sale in July, which ended a three-year hiatus in Aramco’s access to the debt markets. The company had previously issued an equal amount in Islamic bonds back in 2021.

Aramco’s decision to raise funds comes at a time when its production is operating approximately 25% below full capacity. The company has announced plans to pay out $124.3 billion in dividends for 2024, a notable increase from $97.8 billion in 2023. This elevated dividend payout reflects the company's commitment to delivering returns to its stakeholders, even as it navigates a challenging economic environment marked by fluctuating oil prices and production cuts.

Monica Malik, the chief economist at Abu Dhabi Commercial Bank, noted that the increased borrowing in 2024 is indicative of both the higher dividend obligations and the need to support planned capital expenditures amidst a softer outlook for oil revenues. She pointed out that Aramco's dividend payments during the first half of the year exceeded its free cash flow, highlighting the financial strain the company is under.

Historically, Aramco has been a crucial revenue source for Saudi Arabia, which is investing heavily in its Vision 2030 initiative aimed at diversifying the economy and reducing dependence on oil. However, the company is currently facing profit pressures due to lower oil prices and ongoing production cuts.

In a bid to stabilize the oil market, the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, along with allied producers including Russia, has been implementing production cuts. Recently, OPEC+ decided to delay a planned increase in oil output for October and November in response to crude prices hitting a nine-month low, indicating their willingness to pause or reverse production hikes if necessary.

As Aramco continues to navigate these complexities, its latest bond issuance reflects both the company’s need for capital and its strategic focus on maintaining robust dividend payments amidst a challenging market landscape.