Saudi Aramco launches $12 billion of notes; deal prices inside sovereign curve, outside longer-dated comps

By Rebecca Melvin

New York, April 9 – Saudi Arabian Oil Co.’s (Aramco) long awaited notes deal launched on Tuesday with a fulsome $12 billion in five tranches (expected ratings: A1//A+), according to market sources.

A tranche of floating-rate notes that had been initially talked as part of a six-tranche deal was not included in the launch, a syndicate source said.

“I figured that the bonds would have a yield less than that of the Kingdom albeit modestly so as the two credits are joined at the hip,” a New York-based market source said.

The new notes priced 35 basis points inside Saudi Arabia’s 30-year notes, which have a yield spread of mid-swaps plus 190 bps. The new Aramco notes were much closer to the sovereign on its three-year note, which was at mid-swaps plus 55 bps, compared to the sovereign’s mid-swaps plus 61 bps for the same maturity.

The $1 billion three-year notes due 2022 priced to yield mid-swaps plus 55 bps.

The $2 billion five-year notes priced to yield mid-swaps plus 75 bps.

The $3 billion of 10-year notes priced to yield mid-swaps plus 105 bps.

The $3 billion of 20-year notes priced to yield mid-swaps plus 140 bps, and the $3 billion of 30-year notes priced to yield mid-swaps plus 155 bps.

The notes marked a debut in the international bond market for the state-owned oil company and garnered order books for $85 billion.

But compared to other similarly rated global oil major comparables, the new notes were only inside that curve on its shortest-dated three year notes. The other four tranches priced wider than that curve, with the biggest spread difference between the longest-dated notes, or at mid-swaps plus 128 bps for the comparable companies and 155 bps for the Aramco 30-year notes.

For the 10-year notes, the sovereign’s 122 bps spread compared to the new Aramco notes’ 105 bps, which compared in turn to the global oil comparables’ 81 bps.

Aramco does have revenue sources outside of Saudi Arabia whereas the Kingdom’s revenues are nearly entirely dependent on Aramco, so Aramco is essentially the “operating company” to the Kingdom’s “holding company” and slightly superior in credit terms.

Overall it was a “very successful launch for Aramco and the Kingdom, while bondholders get a fully-priced credit with only slight relative value improvement possibilities,” the New York-based market source said.

JPMorgan and Morgan Stanley are global coordinators and bookrunners of the notes offering, with HSBC, Citigroup, Goldman Sachs and National Commercial bank also acting as bookrunners.

The proceeds of the bonds will be used to help fund the company’s $69.1 billion acquisition of 70% of Saudi Basic Industries Corp. in 2020. Aramco announced on April 1 that it is purchasing Sabic from Saudi Arabia’s sovereign wealth fund, the Public Investment Fund.

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