Oil giant Saudi Aramco is expected to approach local and international banks for a $5bn financing deal.
The funds will be to replenish Aramcos capital reserves after the expenditure to build the $10bn Yanbu export refinery, according to Reuters.
Aramco and Chinas Sinopec formed a joint venture to build the 400,000 barrel a day refinery. It was completed in 2014. Aramco took a 62.5 per cent equity stake in the Yanbu Aramco Sinopec Refining Company, with Sinopec owning the remainder.
The loan may be secured on the refinery, meaning Sinopec has to give approval before Saudi Aramco takes action.
Due to the size of the loan, it is expected to be dual currency and involve both domestic and international banks.
We are expecting Saudi Aramco to contact our relationships team soon, says a Riyadh-based banker. Obviously for an Aramco refinery loan, the pricing will be aggressive, the best on the market.
The last time Saudi Aramco tapped banks in early 2015, the rates on its $10bn revolving credit facility gave banks a tiny margin of between 13 and 16 basis points, according to Bloomberg. Saudi Aramco is thought to be the worlds most valuable company and uniquely creditworthy, especially on the domestic market.
|Recent syndicated finance deals by Saudi Aramco and subsidiaries|
|Saudi Aramco Total Refinery & Petrochemical Company||SR2bn||SIDF||refinancing at better rates|
|Saudi Aramco||$10bn||syndicate||13 to 16 basis point margins|
|Rabigh Refining & Petrochemical Company||$5.2bn||JBIC-led syndicate||unknown|
|Sadara Chemical Company||$12.5bn||Exim Bank-led syndicate||125 – 185 basis points above Libor, 75 – 135 above Sibor|
|JBIC – Japan Bank for International Cooperation, SIDF – Saudi Industrial Development fund, Libor – London interbank offered rate, Sibor – Saudi interbank offered rate|
However, with banking sector liquidity tightening in the kingdom, rates may not be so favourable this time.
The Saudi government has issued SR35bn of bonds on the domestic market in 2015, and is widely predicted to issue SR20bn a month until the end of the year. Local companies are also taking advantage of historically low interest rates to secure fixed-rate loans and issue bonds.
Although liquidity in Saudi Arabia has always been high, competition for financing is growing ahead of an expected US Federal Reserve interest rate rise before the end of 2015.
It is a large amount, but Aramco borrowed from the market recently with no issues, say the banker. Government bonds will reduce liquidity in the banking system, but it has never been an issue in Saudi Arabia.