• Saudi Aramco to approach banks for $5bn loan
  • The loan may be secured on the $10bn Yanbu Export Refinery
  • The loan is likely to be dual currency, with domestic and international banks participating

Oil giant Saudi Aramco is expected to approach local and international banks for a $5bn financing deal.

The funds will be to replenish Aramco’s capital reserves after the expenditure to build the $10bn Yanbu export refinery, according to Reuters.

Aramco and China’s 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 world’s most valuable company and uniquely creditworthy, especially on the domestic market.

Recent syndicated finance deals by Saudi Aramco and subsidiaries
Borrower Amount Lender Terms
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
Source: MEED

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.”