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Saudi Aramco bond sale

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What's going on?

A forthcoming public sale of bonds in Saudi Arabia’s state-owned oil production firm, Saudi Aramco, unveiled the company on Monday as the world’s most profitable – making twice as much money as Apple, and five times as much as closest oil rival Shell (tweet this).

What does this mean?

Aramco hit the news for all the wrong reasons a year ago after it dialed down plans to sell shares in what would have been the world’s largest initial public offering. With that now postponed until at least 2021, Aramco is turning to a $10 billion debut international bond sale to help fund its $69 billion acquisition of a majority stake in local petrochemicals giant Sabic announced last week – and to diversify Saudi Arabia’s economy away from overseas sales of oil.

But selling bonds abroad means opening up the books to potential investors. That led to the revelation that Aramco, which produces 10% of the world’s oil, made an astonishing $111 billion profit in 2018 – but also showed the Saudi government depends on that oil for nearly two thirds of its revenue.

Why should I care?

For you personally: MbS money MbS problems.

Saudi Arabia, like China, is gradually opening up its economy to international investors: as of June, its companies will be added to the same MSCI emerging market index as China’s. But while exposure to such regions provides welcome diversification for the $14 trillion (and growing) of global passive investment, it also means your money could help fund governments accused of state-sponsored murder. Not that that’s put off investors in Saudi Arabia so far…

For markets: Could do better.

Despite making enough last year to pay would-be lenders back their paltry $10 billion eleven times over, ratings agencies gave Aramco a credit score several notches below their tippety-top grade. As well as the increasing control the Saudi government has gained over the company in recent years, they may be thinking about the fickle nature of oil prices: in 2016, when oil cost around $40 a barrel (versus 2018’s $80), Aramco’s profit was a mere $13 billion.

Originally posted as part of the Finimize daily email.

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