Biggest Orderbook In History: Aramco Bond Demand Tops Record $100 Billion

Update: just as we expected earlier (see below), the Aramco order book has now crossed $100 billion, making this not only the largest ever orderbook seen in emerging markets, covering 10x the $10 billion Aramco is expected to raise (a number that will almost certainly jump shortly), but the largest orderbook in bond market history, surpassing the prior record when Verizon drew $100BN of orders for a record-breaking $49BN corporate bond sale in 2013.

* * *

Yesterday, when previewing the massive Aramco bond offering coming in a time of sheer yield desperation, and when the offering was "only" 4x oversubscribed, we said that demand could even surpass the record $53 billion in bids that Qatar received for its $12 billion bond sale last year. Well, fast forward just 24 hours later when not only is the Saudi murder of Jamal Khashoggi long forgotten, but demand for the inuaugural bond has doubled and with hours to go before the 6-part bond offering prices, there is now a staggering $85 billion of orders from investors.

The Saudi state-backed oil giant, which last week revealed that it was the world’s most profitable company, earning over $110 billion each year...

WSJ

... opened up the six-part bond sale to investor orders on Monday. At that point the historic $10 billion (but soon to be upsized) offering was already 3x oversubscribed from investors in Europe, Asia and the US. And, as the FT reports, by Tuesday morning the order book had risen to a staggering $85 billion, "a potential record for an emerging-market bond sale, surpassing the $67bn of demand Saudi Arabia itself saw in its wildly popular 2016 bond market debut."

But wait, because with hours still left for the underwriters to allocate demand, the order book may eventually surpass even the developed market record, when six years ago Verizon drew $100BN of orders for a record-breaking $49BN corporate bond sale.

And while Aramco said it was seeking to raise about $10 billion from the sale (it remains unclear why when the company earn over 10x each year), according to the kingdom’s energy minister as Saudi Arabia combines the oil producer with chemical maker Saudi Basic Industries Corp, the likely proceeds will be far greater thanks to what may soon be 10x oversubscription.

As a reminder, Aramco is turning to the dollar bond market as the company raises cash ahead of the purchase of a $69 billion majority stake in domestic petrochemical giant Sabic. The bond sale represents an alternate way for Saudi Arabia to raise money and diversify from oil after an IPO of Aramco was postponed last year. Saudi Arabia has valued Aramco at a whopping $2 trillion, though not all investors are convinced it’s worth that much.

Ironically, if the underwriters allowed every order to be filled, the entire transaction could be funded today with the $85 billion in already committed orders!

Where it gets even more ironic, is that Saudi Aramco’s treasurer has told investors that the company does not need to raise the money, because of its “fortress-like corporate position”, and is focused solely on opening up the historically secretive group to public investors for the first time. In other words, Aramco is doing international creditors a favor by issuing $10 billion in debt (which may end up trading at a lower yield than Saudi Arabia itself).

As the FT notes, "the bond sale is intimately tied to Saudi Crown Prince Mohammed bin Salman’s vision to open up the desert kingdom’s economy to the wider world, after his grander plan of listing a stake in Aramco on stock markets faltered." And in what is certain to infuriate the world's liberal elites, "neither banks nor investors have been deterred from taking part in the high-profile deal despite displays of outrage over the death of Jamal Khashoggi, the journalist, in the Saudi consulate in Istanbul last year."

And here is the peak irony: the Riyadh conference in October, dubbed “Davos in the desert,” was boycotted by several prominent business leaders — including Jamie Dimon, the chief of JPMorgan Chase, which is now leading the Aramco bond sale.

And speaking of what price the bonds price at, the Saudi state-backed oil company is marketing the new bonds at a yield in line with Saudi government bonds. As borrowers typically look to tighten pricing levels before the close of a bond sale, it suggests that Aramco is targeting a cheaper cost of borrowing than the Saudi government, which may deter at least some buyers, although with $85 billion in committed orders, their caution will hardly be noticed.

A banker close to the bond issue said orders were skewed towards the deal’s longer tranches, with Aramco offering investors the chance to buy 20- and 30-year bonds at higher yields. The rush of demand for the Aramco deal has also seen yields on Saudi Arabia’s government bonds fall sharply over the past week, meaning that prices have risen. The country’s 30-year US dollar bond yield has fallen about 20 basis points to 4.58 per cent.

Meanwhile, since rating agencies rate Aramco in line with the Saudi government, in the single A bracket, the oil company has told investors that Moody’s would have given it a top-notch triple A rating, if it were a standalone company, as it produces enough cash each year to cover its debt many times over.

In other words, in today's bizarro world, Aramco has a higher credit rating than the United States.