Saudi Aramco and Enoc take advantage of favourable conditions for loans

Two of the region’s state oil companies are raising substantial funds in the bank loan market, taking advantage of favourable borrowing conditions at a time when their cash flows have been hit by the decline in oil prices.

Saudi Aramco, the world’s largest oil concern, is borrowing a total of US$10 billion via a multi-part syndicated loan, according to Bloomberg News. The report said that Aramco will pay a thin 12 basis points above the benchmark London interbank offered rate, which compares to the 15 basis points margin that ExxonMobil paid on a $5bn loan facility two years ago, when oil prices were twice what they are today.

Separately, Emirates National Oil Company, which is owned by the government of Dubai is raising $1.5bn via a loan that will pay 235 basis points above Libor.

A banker involved in one of the loan syndicates said the two deals, although driven by the specific circumstances of each national oil company, suggest that stronger state oil companies are looking for opportunities to buy assets that have become relatively cheap since oil prices have slumped.

Indeed, Enoc’s chief executive, Saeed Abdullah Khoory, said in an interview last month that lower oil prices had made some assets attractive to buyers.

Enoc this month said it had approached Dragon Oil about making an offer for the 46 per cent of the London and Dublin-listed company that it does not already own. Although it has not yet made a formal offer, Dragon has set up a committee to review the terms of any offer. The company has a market value of about £2.8 billion (Dh15.35bn) at a share price of 577 pence late yesterday in London.

Saudi Aramco is raising the funds partly to replace an expiring $4bn loan.

“That is a very large loan for sure,” said Jason Tuvey, an analyst covering the Middle East at Capital Economics. “Aramco is likely to be raising financing for investment purposes that it otherwise might have funded out of cash flow.”

He also noted that the Saudi oil minister, Ali Al Naimi, has said the Aramco expects to expand its interests downstream in Asia, where it already has substantial interests in refining and storage.

Aramco’s loan will be in four tranches, according to reports. A $6bn five-year loan, a $1bn one-year loan – at 12 and 10 basis points above Libor, respectively – and a 7.5 billion riyals five-year and 3.75bn riyals one-year loan, at 11 basis points and 7 basis points above the Saudi Riyal Interbank Offered Rate, respectively.

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