Saudi Aramco's Debut Debt Sale Sees Slick Demand

Bond investors’ fervor for new U.S. dollar-denominated corporate bond sales and emerging market assets ratcheted-up a notch Tuesday, with Saudi Arabian Oil Company’s (Saudi Aramco) debut debt deal.

Oil giant Saudi Aramco entered the U.S. primary market with a multi-part note offering, which was said to have fetched more than US$100bn in orders.

According to Bloomberg, the US$12bn, five-part issuance met with a groundswell of interest – notably for its longer-dated maturities – with spreads having compressed by roughly 15bps to 20bps from initial price talk through final terms. 

Some of the deal’s tranches had been set at higher levels than Saudi Arabia’s government bonds, with the 5-year notes, for example, priced to yield 2.875% at maturity compared to around 2.994% for the sovereign debt. 

The inaugural note sale, comprised of tenors ranging from 3- to 30-years, was offered to qualified institutional buyers under the SEC’s Rule 144A and Regulation S. The issuance was being joint lead-managed by CitigroupGoldman SachsHSBCJPMorganMorgan Stanley, and NCB Capital Markets.

Risk appetite for EM resurfaces

The recent course of monetary policy in the U.S. has generally reignited investors’ willingness to purchase riskier assets.

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The Federal Reserve’s decisions to maintain the target range for the federal funds rate at 2.25-2.5%, with no plans in 2019 to hike interest rates further, as well as cease other quantitative tightening measures, had spurred a plunge in government bond yields, which effectively spurred issuers to take advantage of still ultra-low borrowing costs, amid ongoing demand for yield.

For the week ended April 3, Thomson Reuters/Lipper U.S. Fund Flows reported a net inflow of roughly US$135m into emerging market equity funds, contributing to a whopping total of around US$18bn this year, while at the end of March, more than US$1bn worth of inflows reportedly made their way into EM debt funds year-to-date.

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