The Saudi Aramco Oil Company (ARAMCO) announced today, Monday, the offering of international bonds for sale through several banks, at a time when the Kingdom is looking for additional sources of revenue to finance spending, in light of the decline in crude prices, and the continuation of closure measures related to efforts to combat the spread of the new Corona virus.

The move came two weeks after Aramco announced that its profits fell by 44.6% in the third quarter, compared to the same period in 2019, which is building up pressure on the government seeking to implement billions of dollars in projects to diversify the oil-dependent economy.

Aramco said - in a statement published by the local "Tadawul" market website - that the bonds that will be issued during the period from 16 to 18 November will be in US dollars, and their duration ranges between 3 and 50 years.

The oil giant - which implemented its first public offering in global debt markets last year, when it raised $ 12 billion after receiving orders for more than 100 billion countries - did not disclose the size of the proposed issue, but the document stated that it plans to offer a standard offering on several segments as dictated by it. Market conditions.

The size of a standard bond issue is usually at least $ 500 million per tranche, according to Reuters.

Citi, Goldman Sachs International, HSBC, JPMorgan, Morgan Stanley and Al Ahly Capital were selected by banks. (NCB Capital) to offer bonds, provided that an application is submitted to accept the bonds on the official list of the British Financial Conduct Authority and the London Stock Exchange.

Aramco was listed on the Saudi Stock Exchange last December, after the largest initial public offering in the world, which reached $ 29.4 billion, in exchange for the sale of 1.7% of its shares.

Since its inclusion in the local market, the company has faced major challenges in global markets, with crude losing about two-thirds of its value.

The need for liquidity

Aramco needs cash to pay a dividend of $ 37.5 billion for the second half of 2020, and finance its acquisition of 70% of the Saudi Basic Industries Corporation (SABIC) for $ 69.1 billion, for which it will be paid in installments until 2028.

According to the company's bond issuance prospectus, as of September 30, Aramco had total borrowed funds of $ 135.55 billion, up from $ 46.82 billion at the end of 2019, a jump explained by the acquisition of 70 percent of SABIC.

The giant company achieved net profits of more than $ 11.8 billion in the third quarter of this year, compared to profits of $ 21.3 billion in the same quarter of 2019, bringing its profits to $ 35.2 billion this year, a decrease of 48.6 from last year.

Aramco's results for the period from July to September showed an improvement compared to the second quarter, when it posted a profit of $ 6.57 billion.

But these results confirm, nevertheless, that the oil market is still far from fully recovering, in light of the continuing closures associated with the emerging Corona virus, as many countries are witnessing new waves of infections and deaths.

Aramco needs cash to pay off its acquisition of 70% of the Saudi Basic Industries Corporation "SABIC" (Reuters)

The dividend from Aramco - seen as the kingdom's largest financier - is helping the Saudi government manage its widening budget deficit.

The kingdom - the world's largest oil exporter - was hit hard by the double whammy of low prices and sharp declines in production.

The sharp decline in crude revenues is expected to hamper Crown Prince Mohammed bin Salman's plans to diversify the economy, according to Agence France-Presse.

Saudi risks

Hasnain Malik, Director of Equity Strategy at Tellimer, said that "in a world looking for yield, there will be no shortage of demand, but the impact of the continued decline in oil prices and the threat it poses to generate liquidity in the long term should have on pricing."

And Fitch Ratings revised its outlook for Aramco last week to negative from stable, a day after a similar move against Saudi Arabia itself.

The kingdom's government owns a controlling stake in the oil giant, and the government's finances depend heavily on the oil and gas sector.

"This is due to the state's influence over the company through strategic direction, taxation and distributions, as well as regulating the level of production in line with OPEC's commitments," Fitch said.

The bond issuance prospectus - seen by Reuters - detailed the risks to investors, such as the Covid-19 pandemic and the kingdom's government decisions on oil production and spare production capacity.

"The costs of Saudi Aramco's compliance with these decisions may not maximize its revenues," the bulletin said, referring to possible restrictions on its oil production.