Why did the Saudi sukuk attract huge investors?

Saudi Aramco has become a commercial company and therefore has a great opportunity to utilize bonds or sukuk to its favor

  
Islamic finance background with calculator and rosary on the table. Image used for illustrative purpose.

Islamic finance background with calculator and rosary on the table. Image used for illustrative purpose.

Getty Images

The news about Saudi Aramco’s dollar-denominated Islamic sukuk has raised some media discussions amid reports it attracted some huge international investors.

From the first day of the announcement, the sukuk offering was oversubscribed by about 10 times by high-rated investors. Though the figure is not yet confirmed, this clearly shows the international bond market trusts Saudi Aramco’s business decisions, as it enjoys a high degree of profitability and operational flexibility.

As the most profitable energy company in the world, Saudi Aramco is always at the top of the news cycle, even if some irrational questions are raised, such as whether the Aramco sukuk issuance will be used to raise liquidity to finance its commitment to pay dividends when the dividends should be paid from the net profits.

To answer such an illogical question, Saudi Aramco, like many other corporations, has the full right to utilize its financial resources in the way that maximizes its profits, based on company board decisions, as it is expected to bear the responsibility of pumping large local investments that are part of Saudi Arabia’s economic developments plans.

Some news agencies have reported that Saudi Aramco plans to raise liquidity through global debt markets to help fund its pledge to distribute dividends. What if Saudi Aramco is likely to be a regular bond or sukuk issuer?

Saudi Aramco has become a commercial company and therefore has a great opportunity to utilize bonds or sukuk to its favor. The fact the Saudi Aramco sukuk was 10 times oversubscribed tells the markets that the energy giant is doing perfectly and is fully able to meet its commitments, as seen during the previous bonds’ issuance. Its first bond offering was a $12 billion deal in 2019, followed by another $8 billion in 2020.

Saudi Aramco’s financial position is strong and flexible, and it has the right to utilize its cash to make the most of its strategic acquisitions and expansion priorities. What distinguishes it more is its low cost of production and the flexibility of its capital spending.

Saudi Aramco has a positive and optimistic outlook in terms of credit, in the medium and long term, and it plans to strengthen its position as a future investment arm, ensuring profits and cash flows.

Especially as Aramco enjoys wide popularity and a positive outlook within the global debt markets, as indicated by the high demand among global investors for the company’s bonds and sukuk.

Yet such a fact is likely to be ignored by some media agencies, which prefer to attract more readers by coating the news with some spicy additions, such as bringing up interesting scenarios such as whether Saudi Aramco will be forced to sell its non-core business assets due to the curbed oil demand amid the pandemic. Despite the sharp reduction in its revenue, the company still registered a net income of $49.07 billion in 2020, while other international oil companies reported huge losses.

• Faisal Faeq is an energy adviser and columnist. He formerly worked with Saudi Aramco and OPEC Secretariat. Twitter: @FaisalFaeq

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view

Copyright: Arab News © 2021 All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info).

Disclaimer: The content of this article is syndicated or provided to this website from an external third party provider. We are not responsible for, and do not control, such external websites, entities, applications or media publishers. The body of the text is provided on an “as is” and “as available” basis and has not been edited in any way. Neither we nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this article. Read our full disclaimer policy here.

More From Islamic Finance