Sukuk industry wants a piece of the world’s most profitable company
By now the world has heard of the most profitable “corporate Empire” and its successful bond issuance. Aramco is in a league of its own when we compare its financial metrics with supermajor oil companies (Saudi Aramco made a net profit last year of $111 billion, more than five times that of Exxon Mobil Corporation (rated AAA)). Aramco's balance-sheet carries all the characteristics of AAA rated firms but the actual rating is A1:
"Saudi Aramco has many characteristics of a Aaa-rated corporate, with minimal debt relative to cash flows, large scale of production, market leadership and access in Saudi Arabia to one of the world's largest hydrocarbon reserves. These features position it favourably against the strongest oil and gas companies that Moody's rates.
The final rating is however constrained by the government of Saudi Arabia's A1 rating because of the close interlinkages between the sovereign and the company." Rehan Akbar, a Vice President - Senior Credit Officer at Moody's.
The Islamic finance industry, however, is waiting to see if Aramco would ever consider issuing dollar-denominated sukuk. Would Islamic finance investors, outside Saudi Arabia, have a chance to get an exposure to an issuer that generates almost $10Bn as net profit every month?
Aramco is no stranger to sukuk.
The oil giant shared its bond prospectus (weighing in at almost 500 pages). The offering circular sheds some insights on sukuk related issuance by either Aramco or its subsidiaries. The issuance, nevertheless, is in local currency (SAR).
The Hybrid structure
On 10 April 2017, SAR 11.25 billion ($3 billion) Sukuk were issued under the Sukuk Programme. The Sukuk mature on 10 April 2024 and, subject to early redemption, the principal is payable in full upon the final redemption date. The Sukuk were issued by Saudi Aramco Sukuk Company, a Saudi joint stock company and an indirect subsidiary of the Issuer that was incorporated to act as issuer under the Sukuk Programme.
The sukuk issuance provides a return based on Saudi Arabian Interbank Offered Rate (SAIBOR) plus a pre-determined margin (paying 25bp over Saibor) payable semi-annually on April 10 and October 10. In accordance with the terms of the sukuk, 51% of the proceeds from issuance are invested in mudaraba assets and the remaining 49% are used in a murabaha arrangement.
The pre-/post- Construction
On October 9, 2011, Saudi Aramco issued a sukuk for SAR 2.34 Billion at par value with semi-annual payments from December 20, 2014 to December 20, 2025 that provides a rate of return above SAIBOR. The sukuk was structured as Istisnah for pre-construction and Ijara for post-construction of the project.
Guarantee to project finance sukuk
Sadara is a joint venture between the Company and DowDuPont that was established in October 2011. Sadara is the world’s largest integrated chemicals complex built in a single phase. In 2013, Sadara conducted a project sukuk issuance in Saudi Arabia for approximately SAR 7.50 Billion with a final maturity in December 2028. Saudi Aramco provided a guarantee for 65% of the sukuk on a limited recourse basis, which may be called at any time, upon the occurrence of certain trigger events prior to the project completion date.