Saudi Aramco, the worlds largest oil exporter, is working with a group of local and international banks on the companys debut sale of sharia-compliant bonds.
The oil giant has selected the US JPMorgan, the UKs HSBC and the local Riyad Bank to set up a riyal-denominated sukuk (Islamic bond) programme, according to US news agency Bloomberg, which cited people familiar with the situation. The first sukuk issue could take place later this year, although the size of the sale has yet to be determined. Aramco could add more banks to the current list before it takes place.
The company, which is at the heart of Saudi Arabias plans for economic transformation, is also considering setting up a dollar-bond programme. The government plans an initial public offering (IPO) of less than 5 per cent in Aramco and to transfer ownership of the rest to the kingdoms Public Investment Fund, which will inflate its size to $2 trillion. The move is aimed at driving revenues from investments rather than the sale of crude, which has been the backbone of Riyadhs income streams.
Aramco had started holding talks with banks about selling bonds earlier this year. The closest the oil major has come to selling debt in the past is a SR3.75bn ($1bn) sukuk issued by Saudi Aramco Total Refining & Petrochemical Company (Satorp), a joint venture with Frances Total. In 2013, another Aramco joint venture, Sadara Chemical Company with the US Dow Chemical, raised SR7.5bn through a sukuk to finance a chemicals complex.
Aramco and Chinas Sinopec in April raised a $4.7bn loan for the Yanbu export refinery, which releases equity invested in the construction of the $10bn refinery, which did not secure project finance before construction. Twenty-six local and international banks participated in the unsecured, seven-year syndicated loan, which has a $3.1bn dollar tranche and a $1.6bn Saudi riyal tranche. Aramco and Sinopec formed a joint venture, Yanbu Aramco Sinopec Refining Company (Yasref), to build the 400,000 barrel-a-day refinery, which was completed in 2014.