Aramco is seeking to raise at least $3 billion, and may increase the size depending on investor demand. Image Credit: AFP

Saudi Aramco started the sale of triple-tranche dollar debt, extending the oil-rich kingdom's debt spree as it brings in cash to help fund projects.

The world's biggest oil exporter is selling dollar bonds for the first time since 2021, according to data compiled by Bloomberg. The debt has 10-, 30- and 40-year maturities, according to a person with knowledge of the matter, who asked not to be identified. Initial pricing thoughts, announced after calls with investors, are at about 140, 180 and 195 basis points over treasuries for the three tranches respectively.

Aramco is seeking to raise at least $3 billion, and may increase the size depending on investor demand, Bloomberg has reported.

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Saudi Arabia's government and affiliated companies have borrowed vast amounts this year, topping China as the biggest issuer of international debt among emerging markets. The government, which needs funds to help cover an expected budget shortfall resulting from an ambitious economic diversification plan, has accounted for more than half of the total debt sold by Saudi entities this year.

Aramco sold its first dollar bond in 2019 and followed with 50-year debt in 2020. It issued dollar-denominated Islamic notes in 2021, data compiled by Bloomberg show. The company hired banks including Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Morgan Stanley and SNB Capital to manage the latest bond sale, which may price later on Wednesday.

The oil producer is a big part of the kingdom's cash flow plans. In June, the Saudi government offloaded an $11.2 billion stake in the company and Aramco's massive dividend payouts "- the biggest in the world "- also help fill state coffers.

In May, the company maintained its $31 billion quarterly dividend payout to the Saudi government and other investors despite lower profit. Its free cash flow "- funds from operations minus capital expenditure "- of $22.8 billion in the period was less than the total payout.

Aramco is likely to use the funds to refinance existing borrowings and contribute to its investment program. The company is expanding natural gas production at home including $25 billion of contracts for the Jafurah project. It's spending billions to maintain oil output and pursuing acquisitions overseas, including tapping into LNG supply in the US and agreeing to take a share in an automotive joint venture.

Chief Financial Officer Ziad Al-Murshed said in February that the company would sell long-dated debt this year as financial markets improve and the company looks to leverage its massive balance sheet. The plan to issue long-maturity bonds shows Aramco is confident it can remain relevant well past the middle of the century even as the energy transition raises questions over future oil demand.