The Saudi Arabian public petroleum and natural gas company, Aramco, has asked banks to extend a $10 billion loan it raised in May 2020 by a year, according to sources.
The move suggests that, for the time being, the rebounding crude prices are not pushing the oil giant to reduce debt. Experts say that though it is the banks’ discretion whether to extend the loan, the lenders will likely agree in order to maintain a good relationship with Aramco in the hope of receiving future business.
LPC (Loan Pricing Corporation), a fixed-income news provider, cited a banker as saying it was possible Aramco would try to push down pricing by arguing that market conditions have improved since May, when oil prices were much lower and there was much uncertainty about the pandemic.
Brent crude futures, the most widely-used crude commodity benchmark, settled at $66.13 a barrel last week. In May last year they were trading at around $30 a barrel, as global demand plunged due to the coronavirus crisis.
According to earlier reports, Aramco would use the loan to back its acquisition of a 70 percent stake in Saudi Basic Industries Corp (SABIC) from Saudi Arabia’s Public Investment Fund (PIF), a deal worth almost $70 billion.
LPC had previously reported, citing a banker, that the loan would be repaid with the proceeds from a bond sale by the fourth quarter of 2020. That did not happen, even though Aramco raised $8 billion in a multi-tranche bond deal in November.
Saudi Aramco’s profits plummeted last year, but it stuck to a promised $75 billion annual dividend, most of which goes to the Saudi government.
Aramco’s prospects look more positive and promising for 2021, hinting at declining net debt and a possible dividend hike, according to one of the largest financial services organizations based out of the UK, HSBC.