Saudi Aramco is seeking to secure billions of dollars in cheap loans from banks and sovereign lenders seeking to strengthen their ties with the oil behemoth in the run up to its mammoth stock listing.
US’ Citigroup, UK’s Standard Chartered and Japan’s Sumitomo Mitsui Banking Corporation were advising on the credit arrangements, which could raise at least $5bn to $6bn, all with the support of export credit agencies (ECA), according to a report by Reuters.
The loans will offer slim returns – probably less than 1 per cent a year – but sources have told Reuters the banks hope to position themselves for more work as the kingdom proceeds with selling up to 5 per cent of Aramco in an initial public offering (IPO) that could value the firm at $2tn.
Saudi Aramco is reportedly seeking a $2bn credit facility from Japan's state export-credit agency, as the global contest for participation in the energy behemoth’s initial public offering (IPO) planned for this year intensifies.
The Japan Bank for International Cooperation (JBIC) is said to be considering offering the loan facility but a final agreement has yet to be reached, Bloomberg has reported citing anonymous sources.
Earlier, Aramco has already obtained a $2bn loan guaranteed by the UK Export Finance agency (UKEF). Citi had a lead role on that transaction.
For its part, Aramco wants to leverage its balance sheet before the IPO, after which it could face higher costs because, once listed, it would cease to be a solely state-owned entity benefiting from cheap funds available to sovereign borrowers.
ECAs offer loan guarantees and sometimes financing to help remove political and other risks facing exporters, encouraging trade and lowering the costs of international business.
Citi was advising Aramco for loans backed by British and US ECAs, Standard Chartered was advising on ECA funding from continental Europe and Sumitomo Mitsui Banking Corporation was advising on transactions backed by Asian ECAs, as per Reuters.
The bank mandates expire in 2018, one of the sources said.
The sources said it was difficult to establish Aramco’s precise needs due to its extensive spending plans and because the loans would finance both new and existing contracts.
The state oil giant was now looking at deals which could involve the South Korean and Japanese ECAs, and at least one more deal that could involve a European ECA, the sources said.
Each of these new loans was likely to be in the range of $2bn. The ECA-backed loans would typically come with tenures of up to 10 years at interest rates generally below 1 per cent a year.
Such low costs were determined by the credit quality of the borrower, a sovereign entity, and the structure of ECA-backed deals in which the agencies take part of the risk. But it also indicated the readiness of banks to accept lower returns ahead of the IPO, to position themselves as closer to Aramco to possibly have a slice of its giant share flotation.
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