Apparently, Crown Prince Mohammed is angling to resurrect Aramco’s “zombie” IPO, which was shelved last year after an exhausting push to take the world’s most profitable company public exposed just how tedious the process was likely to be given corporate governance concerns and the Saudis’ insistence on securing a $2 trillion valuation.
Preliminary plans for getting the ball rolling again are sketchy, at best. According to Bloomberg, the behemoth recently chatted with banks and the process could get going in earnest “later this year or early next year”.
Suffice to say the same issues (e.g., valuation, listing location, the vagaries of the oil market, concerns about Riyadh’s heavy hand, etc.) aren’t going away, so one imagines the process will be just as fraught as it was before. Additionally, it’s worth noting that Prince Mohammed now comes with additional baggage, where that means he ordered the extrajudicial slaying of a Washington Post columnist in the kingdom’s Istanbul consulate. Money talks, so that isn’t likely to be a huge concern (what’s one chopped up journalist among friends, right?) but it doesn’t help.
This will be big news at some point, but on Tuesday, a more interesting tangential story finds the Saudis planning to sell euro bonds in a dual-tranche deal of 8- and 20-year notes. The move of course comes hot on the heels of April’s blockbuster dollar offering, demand for which was so voracious that the company was able to borrow for less than the sovereign.
Tapping the euro market allows the company to diversify its funding sources, but perhaps more important (and certainly just as germane) it represents an opportunity to tap what might as well be free money.
Consider this: On Tuesday, 2-year yields in Italy fell below zero again, rallying for a fifth day as the promise of more ECB accommodation continues to drive an insatiable hunt for yield. (Aside: Italy has adjusted its projected budget deficit lower in an effort to placate Brussels, and that’s adding to the positive impetus)
The frantic scramble evidenced by plunging Italian yields serves as a powerful bullish technical for € credit as well. Indeed, as BofA wrote last week, “hardly any IG paper in Europe is above the 1% threshold”.
(BofA)
“There are not enough assets out there to provide 1% yield”, the bank’s Ioannis Angelakis wrote. “In the high-grade space the options are scarce: 10y paper, sub insurers, corporate hybrids and AT1s”, he continued, adding that “there is hardly anything that yields above 1% in the senior space with less than 10yr of duration.” IG borrowing costs across the pond are just ~0.5%.
Given that scarcity of quality assets that offer any semblance of yield, this seems like an opportune time for a sovereign borrower of Saudi Arabia’s clout to tap the euro market.
“The kingdom’s two-part sale includes an eight-year bond probably yielding just over 1%, based on asset-swap spreads”, Bloomberg’s Dana El Baltaji wrote Tuesday. “Compared with 3.32% for the sovereign’s 2029 USD bond, that’s practically free money”.
Indeed.
