Aramco’s timing is impeccable but creditworthiness is inextricably tied to the State

  • Aramco is coming to the market at the perfect time, oil prices are at their highest levels since November last year and interest rates in the region are at their lowest for over a year.
  • Demand for Aramco’s bonds has already broken records for EM issuance with orders of over $85bn. Aramco is expected to actually raise $10bn to $15bn.
  • The issuance is to raise funds for Aramco’s $69bn purchase of petchem giant, SABIC, which is owned by the Saudi sovereign wealth fund, PIF. It is essentially leveraging Aramco’s strong balance sheet to provide funds for government investment plans.
  • The close ties between Aramco and the State suggest that the oil giant could be called on to provide further funding to the government in the future. The sustainability of Aramco’s debt is, therefore, inextricably tied to the state.
  • As we outlined in our recent report How sustainable is debt in the GCC?, Saudi Arabia should be fine with oil prices above $50, but oil prices below this level could lead to spending cuts, higher taxes, currency devaluation and concerns about further debt issuance.

Debt Affordability in Saudi Arabia