Khobar- Saudi Aramco, the world’s largest oil producer, is paying a significant premium to the government and to its previous borrowing in its first sale of Islamic bonds.
Aramco is offering seven-year, riyal-denominated sukuk at 25 basis points (bps) over the six-month Saudi Arabian Interbank Offered Rate (SAIBOR) to institutional investors as the company diversifies its funding.
The company is seeking to raise about $2 billion in its debut sale of Islamic bonds under a 37.5 billion-riyal ($10 billion) sukuk program, people with knowledge of the matter said this month.
Bloomberg said on Wednesday that Aramco set final pricing for its debut Islamic bond, which is expected to close on April 3.
Meanwhile, bankers told Reuters that the private placement could be as large as about SR6 billion.
The firm is finding it significantly more expensive to issue debt than the Saudi government, whose last domestic issue of floating-rate 7-year bonds was sold at between 10 bps and 15 bps below three-month SAIBOR.
It also looks more expensive for Aramco than the riyal component of a $10 billion-equivalent, dual-currency revolving credit facility signed in March 2015.
That tranche included one-year and five-year portions, with the latter offering 11 bps over SAIBOR.
For his part, Mohammed Khnifer, an Islamic debt capital markets banker at the Islamic Development Bank Group, estimated Aramco could have offered less than 11 bps over SAIBOR if it had chosen a five-year sukuk maturity.
“A seven-year tenure does not justify the addition of over 10 bps,” he said.
“I think Aramco left 5 to 10 bps on the table,” he said, noting that the impact would be small for a company which, Saudi officials have said, has a market value of over $2 trillion.
There are at least two sources of uncertainty for the Aramco sukuk, said Reuters.
The first is that the government is preparing to sell up to 5 percent of the company in an initial public offer (IPO) next year.
Another uncertainty is the outlook for liquidity in the Saudi money market over coming years.
After soaring to a peak of 2.47 percent last October as low oil prices starved the market of funds, six-month SAIBOR has fallen back to 2.01 percent as a slight rebound in oil and overseas borrowing by the government have eased pressure on state finances.