Low oil prices, pressure on dividends, Saudi Arabia and Aramco to issue debt again

A year after its IPO, Saudi Aramco is once again preparing to issue international bonds.

Last year, Saudi Aramco went public and was in the limelight for a while. But this year’s neo-crowning epidemic has dramatically hit global demand for crude oil, putting pressure on Saudi Aramco’s finances, and the company’s debt levels have been soaring. Earlier this month, the company reported a 45 percent drop in third-quarter net income to just $11.8 billion.

Despite this, the company has not rescinded its commitment to pay a $75 billion dividend to investors this year.

Saudi Aramco is under pressure to cut spending and raise cash amid an unfavorable external environment. Its largest shareholder, the Saudi government, faces a widening budget deficit amid a global epidemic and low oil prices. The company has cut capital spending by about $25 billion to $30 billion this year.

Last week, ratings agency Fitch downgraded its outlook on Saudi Aramco to negative from positive, citing concerns about the government’s poor financial position; the long-term rating is A.

Saudi Aramco’s bond offerings are scheduled to be traded as U.S. dollar-denominated bond offerings of multiple maturities, including 3-, 5-, 10- and 30-year and/or 50-year bonds, depending on market conditions.

The benchmark bonds are typically at least $500 million per maturity, and the Wall Street Journal expects Moody’s and Fitch to assign A1 and A ratings to these bonds, respectively.

This will be the company’s second international bond offering to raise funds since it issued $12 billion in bonds last April.

Saudi Aramco has hired Goldman Sachs Group Inc, Citigroup, HSBC, JPMorgan Chase & Co, Morgan Stanley and NCB Capital to schedule an investor conference call ahead of the planned deal starting Monday, according to a deal report issued by Saudi Aramco.

Other banks involved in the deal include BNP Paribas, BOC International, Bank of America Securities, Credit Agricole, First Abu Dhabi Bank, Mizuho, Mitsubishi UFJ, SMBC Nikko Securities and Société Générale, the report said.