Saudi Aramco targeting capital markets for fund raising

31 January 2013

Oil major Saudi Aramco warns that market still faces challenges as it aims to tap sukuk buyers

Saudi Aramco intends to help play an important role in developing the country’s capital markets through issuing project bonds, according to the company’s treasurer Jamal al-Rammah.

“The CMA (Capital Market Association) and Sama (Saudi Arabian Monetary Agency) have urged institutions to raise finance through sukuk (Islamic bonds).” said Al-Rammah, speaking at the MEED Project Finance conference 2013 on 29 January in Dubai.

He added that Aramco’s decision to issue a SR3.7bn ($1bn) sukuk for the Saudi Aramco Total Refining and Petrochemical Company (Satorp) project in October 2011 was “an important step for the development of the capital markets in the kingdom”.

The oil company is expected to issue another sukuk to fund the Sadara Chemical Company, a $20bn joint venture project with the US’ Dow Chemical. Al-Rammah said he hopes the Sadara financing will reach financial close this year.

Despite the desire of governments around the region to develop the capital markets, Al-Rammah said there are still several challenges facing the area. “The lack of liquidity in secondary markets remains a key issue. Therefore, there is a need to develop a more robust secondary market for sukuk to enhance its appeal,” he said. “The lack of standardisation also limits its use.”

Sukuk should become increasingly important in future project finance deals though, as bank appetite for long term lending dries up. “Although a core group of banks will continue to offer project finance, aggregate capacity will continue to be eroded,” he said. “This creates an opportunity for the sukuk market to become increasingly important.”

Al-Rammah received the MEED Leadership in Project Finance award at the conference, in recognition of Aramco’s work in the capital markets, the financing of the Satorp project, and the impending completion of the Sadara financing. He also added that the fundraising for the PetroRabigh two project would progress “on schedule”.

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