Aramco Starts First Bond Sale of This Year as Oil Prices Lag - Bloomberg

Aramco Starts First Bond Sale of This Year as Oil Prices Lag - Bloomberg

Aramco is launching its first bond sale of the year, just as oil prices remain well below levels needed to balance Saudi Arabia’s budget.

The government-owned oil producer is marketing debt with maturities ranging from three to 30 years, according to a person with knowledge of the matter who asked not to be identified. The company plans to invest more than $50 billion this year in supporting and expanding oil and natural gas production, while maintaining its high base dividend of $21 billion.

Saudi Arabia’s budget remains heavily dependent on oil revenue as the kingdom pursues an ambitious modernization drive that has forced the government to project spending shortfalls for the coming years. Aramco is a key contributor to state finances, with large dividend payments supplementing royalties linked to crude sales.

Initial pricing though ranges from about 100 basis points over US Treasuries for the three-year tranche to about 165 basis points for the longer maturity. The market expects the bond sale will raise about $2 billion.

While Brent crude has risen this year amid geopolitical tensions, including US attacks on or threats of action against fellow OPEC producers Venezuela and Iran, the global benchmark lost almost 20% in value last year.

Brent was trading just at about $66 a barrel on Monday, while Saudi Arabia needs levels above $90 a barrel to balance its budget under current spending plans.

Aramco’s gearing — a measure of indebtedness — remains low relative to industry peers, and the company plans to gradually raise it, Chief Financial Officer Ziad Al-Murshed said on conference calls this year. Aramco has also signaled that further debt sales are planned.