Aramco Confirms $3 Billion Islamic Bond Issuance

Saudi Arabian Oil Co. (Aramco) recently completed a two-tranche international sukuk offering in United States dollars, raising a combined $3 billion, it confirmed Thursday.

The capital raise, which involved the sale of debt certificates compliant with Islamic religious laws, consisted of $1.5 billion maturing 2029 with a 4.25 percent interest per year and $1.5 billion to be repaid 2034 with a 4.75 percent interest per annum. Bloomberg reported the sale last week citing unnamed sources.

Until this year, Aramco had not sold bonds since its last offering in 2021. The offering it confirmed Thursday is its second in 2024, having raised $6 billion in United States dollar-denominated senior unsecured notes last July.

Both 2024 offerings were oversubscribed and issued with negative premiums. “Building on the strong investor reception from our July 2024 bond issuance, this sukuk offering represented an opportunity to engage with a broader investor base”, Aramco executive vice president and chief financial officer Ziad T. Al-Murshed said in a company statement Thursday.

“The impressive demand, as demonstrated by the oversubscribed sukuk order book, reflects Aramco’s unique credit proposition, underpinned by its competitive advantage and a proven track record of financial resilience through cycles”.

The new sukuk securities have been listed on the London Stock Exchange.

The earlier debt sale this year consisted of $2 billion due 2034 with a 5.25 percent interest, $2 billion maturing 2054 with a 5.75 percent interest and $2 billion due 2064 with a 5.875 percent interest.

The July offering, under the company’s Global Medium Term Note Program, had an initial target of $5 billion. The program, announced April 1, 2019, is also listed on the London Stock Exchange.

“The transaction received strong demand from a diverse base of investment-grade focused institutional investors”, Aramco said in a press release July 18, 2024.

“Our order book exceeded $33 billion at its peak, reflecting Aramco’s exceptional financial resilience and fortress balance sheet”, Al-Murshed said then.

Aramco’s new borrowings come as the kingdom expects budget deficits to continue, reaching SAR 109 billion ($29 billion) in 2026, according to Saudi Arabia’s 2024 budget statement.

Aramco sees capital investments growing until the middle of the decade from an expected $48 billion this year. After that, however, Aramco projects capex falling by about $40 billion in the few years to 2028 due to the government’s order that it keep maximum oil output at 12 million barrels a day, according to the company’s financial report for 2023 released March 20, 2024.

Aramco first issued international bonds 2019, a few months before making its initial public offering the same year. It raised $12 billion from the debut offering April 2019 under its Global Medium Term Note Program.

In November 2020 Aramco issued dollar-denominated notes with $7.5 billion in total maturities in 2025, 2030, 2050 and 2070, according to its Bond Information webpage.

In June 2021 Aramco said it had raised $6 billion from the sale of dollar-denominated Islamic bonds to institutional investors. Of the offering under Aramco’s International Sukuk Program, $1 billion was to mature 2024 carrying a 0.946 percent interest, $2 billion was due 2026 with a 1.602 percent interest and $3 billion was due 2031 with a 2.694 percent interest.

In its report for the first half of 2024, Aramco said, “In April 2024, the Company repaid SAR 7.5 billion ($2.0 billion) associated with the second tranche of its five-year USD-denominated unsecured notes issued in 2019”.

“In addition, in June 2024 the Company repaid SAR 3.75 billion ($1.0 billion) relating to the first tranche of its three-year international Sukuk trust certificates issued in 2021”, it added.

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