BY GEORGE HAY

Aramco is doing its best to look like a normal company. The Saudi oil giant on April 1 disclosed a 469-page prospectus for its maiden dollar bond issue, to help fund the $69 billion acquisition of a 70 percent stake in chemicals group SABIC. When investors have finished gawping at the scale of Aramco’s income statement, they may be marginally less concerned about its links to Saudi Crown Prince Mohammed bin Salman.

Aramco’s numbers are, as expected, immense. Earnings of $111 billion in 2018 make it the world’s biggest generator of corporate earnings. Despite $27 billion of borrowings, it still has net cash of $22 billion. The lack of public information meant investors could previously only guess at Aramco’s riches.

The question is whether big numbers alone can persuade foreign debt investors to take up the more than $10 billion in bonds currently anticipated, or whether overseas equity investors would support a mooted IPO – if the latter is ever taken out of deep freeze. The reasons not to remain obvious – Aramco remains wholly owned by a Saudi state whose agents spooked markets in October by murdering journalist Jamal Khashoggi. The debatable logic of the SABIC deal highlights the risk of government meddling.

Yet the prospectus suggests Aramco can at least drive a hard bargain. After a lengthy negotiation, the oil giant has agreed to only hand over half the cost of the SABIC acquisition upfront to the Public Investment Fund, which MbS directly controls. The balance will be paid in 2020 and 2021. While Aramco has to pay the PIF $1 billion for the privilege, the deal still suggests some degree of independence, given Aramco could quite easily have afforded the whole lot.

Other prospectus details point the same way. Aramco now gets compensation for selling oil to Riyadh at fixed prices, and pays 32 percent of its revenue to the government in royalties and taxes, against 59 percent in 2016. The company also has a guarantee for money it is owed by public-sector customers.

That doesn’t mean investors would pile into any future IPO. If Aramco was really independent it might not have acquired SABIC at all – the main benefit of which was to keep the PIF in funds given the delayed IPO. Still, Aramco bulls now have something to cling to.

First published April 1, 2019