- Saudi Aramco plans to sell bonds to boost its balance sheet and fund SABIC takeover and dividend payouts
- Fitch downgraded Aramco’s outlook rating to ‘Negative’ from ‘Stable’
- Saudi Aramco stock price is trading 5.34% higher in November
Shares of Saudi Aramco (Tadawul: 2222) are trading 5.3% higher in November after losing more than 6% in December.
Fundamental analysis: International bond offering to fund dividend payment
Saudi Aramco will sell bonds to boost its balance sheet as the world’s largest oil exporter struggles to cope with falling oil prices in 2020. The company has already secured $12 billion last year after receiving offers from international investors worth more than $100 billion.
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The oil giant has reportedly instructed Goldman Sachs, Citi, HSBC, JPMorgan, Morgan Stanley and NCB Capital to generate offers.
“The backdrop is supportive,” a debt banker said.
Aramco previously committed to pay a quarterly dividend of $18.75 billion, totalling half-year dividend payout to $37.5 billion. Moreover, the funds are needed to fund a purchase of a 70% stake in Saudi Basic Industries (SABIC) for $69.1 billion.
“In a world searching for yield, there should be no shortage of demand. But persistent low oil prices and the threat that poses to long-term cash generation should be reflected in pricing,” said Hasnain Malik, chief equity strategist at Tellimer.
Last week, the prominent rating agency Fitch downgraded Aramco’s outlook rating to ‘Negative’ from ‘Stable’, to reflect a similar rating move on Saudi Arabia.
“Saudi Aramco’s financial profile is conservative compared with that of international integrated oil producers. We project that at end-2021 Saudi Aramco’s funds from operations (FFO) net leverage will be around 1.0x, compared with Royal Dutch Shell’s 1.0x, Total SE’s 1.4x and BP plc’s 2.2x,” Fitch said in a statement.
Technical analysis: Stock price recovers
Saudi Aramco stock price is trading 5.34% higher in November as the buyers work to erase losses from October. This month’s push higher has helped Aramco share price to return to positive territory year-to-end.
Aramco stock weekly chart (TradingView)
The price action stopped at 35.50 which hosts a horizontal resistance line. A break above this resistance will open the door for a move to 36.80 where the key descending resistance line is located. Click here to learn more about long-term stock investing.
Saudi Aramco will seek to improve its balance sheet through an international bond offering. Overall, a recovery in Aramco stock price can be expected as long as the crude oil prices stay supportive.