[DUBAI] Saudi Aramco is targeting more borrowings to finance growth and better leverage its balance sheet, chief executive officer Amin Nasser said, as the world’s biggest oil exporter raised US$5 billion in bonds this week.
The Saudi state oil producer needs funds to plug a gap in finances as declining free cash flow amid weaker crude prices fails to cover a massive dividend payment, even after it was reduced. That’s boosted net debt to the highest in almost three years and driven up leverage ratios, but they still remain way below some of the other major oil companies.
“Our gearing today is around 5 per cent, still one of the lowest” in the industry, Nasser said. “We will continue to tap into that additional bond markets in the future.”
The company sold US dollar-denominated notes in three tranches on Tuesday (May 27), taking its issuances over the past year to US$14 billion and adding to a spree of borrowings by the Saudi government and its affiliated companies. The kingdom’s debt levels jumped the most ever last quarter as it borrows to help cover an expected budget shortfall resulting from an ambitious economic diversification plan and falling oil prices.
Aramco’s gearing ratio – a measure of its indebtedness – rose to 5.3 per cent at the end of March from 4.5 per cent at the end of last year. That compares with an average of 14 per cent for international oil companies last year, Aramco said earlier this month. Shell’s gearing is 18.7 per cent and TotalEnergies’s is 14.3 per cent.
In Aramco’s latest issuance, the longest-dated note, a US$2.25 billion 30-year note, will yield 1.55 percentage points more than Treasuries, a source familiar with the deal said. That’s about 50 basis points higher than the sovereign risk premium for Saudi Arabia, according to data from JPMorgan Chase, making it attractive for investors.
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Weaker oil resulted in Aramco’s first-quarter net income sliding 4.6 per cent from a year earlier. Free cash flow – the money left over from operations after accounting for investments and expenses – declined 16 per cent to US$19.2 billion, and was not enough to cover a reduced US$21.36 billion dividend.
Some of the price pressures have deepened with crude’s 12 per cent decline since early April. Riyadh has led a push by the biggest Opec+ producers to unwind supply cuts at a faster-than-scheduled pace, at a time when there are concerns over demand amid US President Donald Trump’s global tariff policies.
Still, Nasser reiterated his bullish outlook. Demand in the first quarter of this year rose by 1.7 million barrels a day and continues to expand, he said. Aramco, which has one of the world’s lowest oil extraction cost of about US$3 a barrel, can sustain a period of weak prices, he said.
“The fundamentals are still strong,” Nasser said of the markets. “The tariffs had some impact on the global economy and sentiment, but, still the fundamentals are strong and we think that will continue for the foreseeable future.” BLOOMBERG
