Saudi Aramco: size doesn’t matter
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People and MarketsCommentLeader

Saudi Aramco: size doesn’t matter

It is clear that Saudi Aramco does not need the cash from the bond it looks set to raise next week. With that being the case, investors and bankers should bet on the lower end of any stated size range, and other Saudi issuers should be hoping that tight pricing is the priority

Aramco earned $111bn last year. It has net cash of $22bn.

The money it is raising is to fund the 70% stake it is buying in chemicals company Sabic. But both Sabic and Aramco are 100% owned by the Saudi government, and regardless of that, Aramco has enough cash to cover the purchase price.

The company does not need the money, which as any banker will say, is the perfect time to print a bond.

But there are caveats to this advice, particularly if Aramco’s owner, the Saudi government, considers the fate of its government related entities (GREs) as a whole, the way investors seem to.

Rumours around the size of the Aramco deal range from $7bn-$15bn. If it prints a lower number, DCM bankers say it will print tightly, perhaps even inside the sovereign. 

There would be nothing to stop Aramco returning at a later date for more — though quite why it would bother when it doesn’t even need this funding in the first place is anyone’s guess. A lower number would also leave ample liquidity available for the other Saudi GREs that want to print.

No one will consider the Aramco deal a failure if it prints under $10bn. The measure of success for this deal should be what it does for the Saudi bond market in the future.

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