Saudi Aramco’s Debut US$6bn International Sukuk in June 2021 a Major Boost for Investors as Offering Attracts Largest Ever Order Book in Sukuk Issuance History

As the world’s largest integrated oil and gas company, the Saudi Arabian Oil Company (Saudi Aramco) does not do fixed-income issuances in modest measures. On 17 June 2021, the company successfully issued its debut Sukuk in the international market raising US$6 billion in the process, the single largest quasi-sovereign or corporate issuance to date.

The Senior Unsecured Reg Rule 144A certificates were issued by SA Global Sukuk Limited, a special purpose vehicle incorporated in the Cayman Islands on behalf of the Obligor, Saudi Aramco, under its unlimited Trust Certificate Issuance Programme established on 7 June 2021. That Programme was arranged by Citigroup, HSBC, JP Morgan and Morgan Stanley, with Goldman Sachs, First Abu Dhabi Bank, NCB Capital and Standard Chartered Bank also acting as dealers.

The hybrid Mudaraba/Murabaha issuance comprised three tranches – a 10-year US$3 billion tranche maturing on 17 June 2031 priced at a profit rate of 2.694% per annum; a 5-year US$2 billion tranche maturing in 17 June 2026 priced at a profit rate of 1.602% per annum; and a 3-year US$1 billion tranche maturing in 17 June 2024 priced at a profit rate of 0.946% per annum – all three payable semi-annually.

Both the Trust Certificate Issuance Programme and the Sukuk certificates were assigned an ‘A;’ rating by Fitch Ratings in line with Saudi Aramco’s Long-Term Issuer Default Rating (IDR) and senior unsecured rating of ‘A’.

The asset pool for the transaction will constitute 51% tangible assets through a Mudaraba agreement and 49% in a commodity Murabaha (Tawarruq) facility, which will help finance the periodic payments to certificate holders. The Sukuk documentation includes an obligation on Saudi Aramco to ensure that, at all times, the tangibility ratio is more than 50%, with a put option becoming exerciseable if the ratio falls below 33%.

“If the tangibility ratio falls below 33% (tangibility event),” explained Fitch, “the certificates will be delisted and each certificate holder can exercise a put option to have their holdings redeemed, in whole or in part, on the tangibility event put date at their dissolution distribution amount within 30 days after notification. In such an event, there would be implications on tradability and listing of the certificates.”

Fitch expects Saudi Aramco to maintain the tangibility ratio at above 50% with support from its extensive asset base; its tangible fixed assets totalled over US$300 billion in Q1 2021. The company also has a strong liquidity profile with relatively low leverage.

Saudi Aramco reported a 30% year-on-year increase in net income for Q1 2021 to US$21.7 billion from US$16.7 billion and declaring a dividend of US$18.8 billion to be paid in Q2. The results were underpinned by higher oil prices and an improved economic environment in the first three months of 2021. Cash flow from operating activities and free cash flow was US$26.5 billion and US$18.3 billion respectively in the first quarter, while first quarter capital expenditure stood at US$8.2 billion.

Aramco demonstrated reliable upstream performance with an average total hydrocarbon production of 11.5 million barrels per day of oil equivalent in the first quarter of 2021, including 8.6 million barrels per day of crude oil.

In 2020, Saudi Aramco produced 12.4 million barrels per day of oil equivalent, including 9.2 million barrels per day of crude oil. Saudi Aramco’s crude oil production accounted for approximately one in every eight barrels of crude oil produced globally from 2016 to 2020. As at 31 December 2020, Saudi Aramco’s proven liquids reserves were 224.1 billion barrels, gross refining capacity amounted to 6.4 million barrels per day and net refining capacity amounted to 3.6 million barrels per day.

The transaction was launched on 7 June and the oil giant mandated Citigroup, HSBC, JP Morgan, NCB Capital and Morgan Stanley to act as lead managers and bookrunners to the issue with Goldman Sachs, First Abu Dhabi Bank, Standard Chartered Bank, Alinma Invest, Al Rajhi Capital, BNP Paribas, Riyad Capital and SMBC Nikko all joining as managers and co-bookrunners.

The mandate was to arrange a series of investor meetings commencing on 7 June onwards in the UK, Europe, Middle East, Asia and for US Offshore accounts. The initial price guidance was set at around 105 basis points (bps) over US Treasuries (UST) for the 3-year certificates; around 125 bps over UST for the 5-year certificates and around 160bps over UST for the 10-year papers.

As expected the issuance attracted huge demand from a range of international and regional investors. The transaction was over-subscribed more than 20 times and attracted a combined order book of over US$60 billion.

“We are pleased with the global investment community’s response to Aramco’s first international dollar Sukuk, which attracted demand 20 times the initial targeted issuance size. The outcome demonstrates further evidence of Aramco’s unique value proposition, which is underwritten by its operational and financial resilience,” maintained Amin H Nasseem, President and CEO of Aramco.

Similarly, according to Khalid Al-Dabbagh, Aramco Senior Vice President of Finance, Strategy and Development, “our inaugural international Sukuk offering led to the largest order book ever recorded globally for a dollar-denominated Sukuk transaction, with orders exceeding US$60 billion.” The success of the transaction, he added, “is a strong endorsement from the global investment community of our leading position in the industry, and our ability to deliver on our long-term business strategy. The issuance attracted more than 100 new investors across the globe.”

In a disclosure to the Saudi Stock Exchange (Tadawul) on 7 June 2021, the company confirmed that the proceeds from all three tranches “will be used by Saudi Aramco for general corporate purposes or for any other purpose specified in the
Final Terms for a series of trust certificates.”

The Sukuk is listed for trading on the main list of the London Stock Exchange following approval of the prospectus from the UK Listing Authority, a division of the Financial Conduct Authority.

Saudi Aramco and its various subsidiaries are regular users of Islamic finance and Islamic debt market instruments including Sukuk and syndicated Murabaha facilities.

A month after establishing its first Sukuk Issuance Programme of up to SAR37.5 billion (US$10 billion) in 2017, the company issued its debut domestic SAR11.25 billion (US$3 billion) Sukuk under the Programme. That 7-year issuance was offered on a private placement basis and priced at a floating coupon of 25bps above 6-month SAIBOR.

Share this post