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Cheap Loans Being Attempted To Be Raised By Saudi Aramco Before Its IPO: Reuters

Cheap Loans Being Attempted To Be Raised By Saudi Aramco Before Its IPO: Reuters
Banks seeking to strengthen their relationship with Saudi Aramco are considering doling out cheap loans worth billions of dollars, before the oil giant’s stock listing, according to a report by news agency Reuters, citing sources from the banking industry and export credit agency (ECA) sources.
The transactions are being advised by Sumitomo Mitsui Banking Corporation and Citigroup (Citi), Standard Chartered and according to the news report, the deliberations would result in generation of loans of at least $5 billion to $6 billion and all of those would have ECA-backing.
There have been market speculations that the initial public offering (IPO) of Aramco would be delayed or even cancelled but this attempt by the company to raise debt is a clear indication to the market that the oil giant would be pushing ahead with the IPO in 2018 itself and one that would be the largest ever sale of shares too the public.
The banks that are offering the soft loans, with returns of less than 1 per cent, are doing so in the hope that they would get more work from Saudi Arabia as the kingdom pushes to offer up to 5 per cent of Saudi Aramco through the IPO which could be valued at $2 trillion.
The cheap loans would be used to better the balance sheet of Aramco before the IPO because once it becomes a publicly listed company, access to such soft loans, available to sovereign borrowers, would not be possible for it as it would no longer be a solely state-owned entity.
“There’s momentum for Aramco to tap this form of financing. If they did it after the IPO, they’d have to pay more,” one banker to Reuters.
The report said that transactions backed by Asian ECAs is being advised by Sumitomo Mitsui Banking Corporation, ECA funding from continental Europe is being advised by Standard Chartered and loans backed by British and U.S. ECAs is being advised by Citi.
There were no comments from Citi and Standard Chartered. No representative was available for comments from Aramco and Sumitomo Mitsui.
Since the loans would be utilized for financing of both new and existing contracts and because of the massive spending plans of Aramco, it is difficult to ascertain the exact needs of Aramco of the money, the sources reportedly said.
A $2 billion loan backed by the UK Export Finance agency (UKEF) has already been obtained by Aramco.
The sources further said that deals that included South Korean and Japanese ECAs is being looked at by Aramco now in addition to at least one additional transaction including a European ECA. The sources added that around $2 billion dollars would be the likely value of each of the new loans.

Christopher J. Mitchell

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