State oil giant Saudi Aramco has raised US$3 billion from two-part Islamic bonds, or sukuk, tapping the debt markets for the second time this year as it expects to pay huge dividends, mainly to the government.
The state oil giant on Wednesday (Sep 25) sold US$1.5 billion in five-year sukuk at a spread of 85 basis points (bps) over US Treasuries and US$1.5 billion in 10-year Islamic bonds at 100 bps above the same benchmark, two sources with direct knowledge of the matter said, tighter than earlier guidance on strong demand.
Aramco did not immediately respond to a request for comment.
Aramco, in which the Saudi government holds a nearly 81.5 per cent stake and its sovereign Public Investment Fund another 16 per cent, was aiming to raise up to US$3 billion in the deal, Reuters reported on Tuesday.
The world’s top oil exporter raised US$6 billion from a three-tranche bond sale in July, ending a three-year debt market hiatus after it issued the same amount in Islamic bonds in 2021.
The debt-raising comes at a time when it is producing about a quarter below its capacity and has outlined it will pay US$124.3 billion in dividends for 2024, up from US$97.8 billion last year.
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“We see the increased borrowing in 2024 reflecting both the higher dividend payments and to support its planned capital expenditure, at a time of softer oil revenue outlook,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“Indeed, Aramco’s dividend payments were higher than the company’s free cashflow” in the first half of this year, she added.
Aramco has long been a cash cow for Saudi Arabia, which is pouring billions of dollars into its Vision 2030 economic overhaul plan to create new industries and reduce reliance on oil.
But lower oil prices and cuts to production have weighed on Aramco’s profit.
The Organization of the Petroleum Exporting Countries, de facto led by Riyadh, along with allies including Russia – together known as Opec+ – have been cutting oil output to support prices.
Earlier this month, Opec+ agreed to delay a planned oil output increase for October and November after crude prices hit their lowest in nine months, saying it could further pause or reverse the hikes if needed.
Brent Crude was trading at US$71.43 a barrel at 0615 GMT. REUTERS
