Saudi Aramco, the world’s biggest oil company, is set to return to the bond markets for the first time since April of last year as it seeks to fund a $75 billion dividend commitment. Aramco, which hired banks including Goldman Sachs Group Inc. for the sale, needs to raise debt after slumping crude prices caused profit to fall by 45% in the third quarter. That’s left it unable to generate enough cash to fund the investor payouts, almost all of which go to the Saudi government, which needs the money to plug a widening budget deficit.
Aramco has slashed spending, cut jobs, and is considering selling some assets. Despite these efforts to conserve cash, its gearing — a measure of debt as a percentage of equity — has increased to 21.8%, above its target range of 5% to 15%. Gearing also rose because the company took on debt to pay for its $70 billion acquisition of Saudi Basic Industries Corp., a chemical maker, earlier this year.
“The challenge for the issue should not be demand, given the search for yield in such a low local and global interest-rate environment,” said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer, a research firm specializing in emerging markets. “But low oil prices for longer, which means lower cash generation, must surely be reflected in tougher pricing for Aramco.”