MIDEAST DEBT Disappointing Aramco pipeline bonds signal risk for longer-term Gulf debt

DUBAI, Jan 19 (Reuters) – A disappointing bond sale by investors in Aramco pipelines points to new risks for longer-term Gulf deals, particularly unconventional structures, as investors become more selective amid abundant supply and worried about a more hawkish Fed.

EIG Pearl Holdings, led by U.S.-based EIG Global Energy Partners, on Thursday sold $2.5 billion of redeeming double-tranche bonds, well below the $3.5 billion to $4.4 billion it was seeking.

These infrastructure-related deals out of the Gulf typically primarily target US and European investors, who have been busy last week with sudden moves in several emerging market (EM) debt as well as rising Treasury yields and fears. The Fed – already scaling back its pandemic-linked bond buying program since November – could raise rates sooner than expected.

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Orders peaked at around $5 billion and spreads remained unchanged from initial prices – which is rare for Gulf deals, especially those associated with big names like Aramco.

“It’s more like a project-based bond, and such transactions, in my experience, require more time from investors to better assess credit and structural risk,” said manager Sergey Dergachev. of funds at Union Investment, which transmitted the agreement. as well as several other emerging market and Gulf-focused fund managers who spoke to Reuters.

“It’s the flurry of new issues and a lot of first issues that has come over the past week…where investors have to prioritize what to focus on,” he said.

EIG Pearl was aiming to refinance a $10.8 billion bridge loan that backed its acquisition of 49% of Aramco Oil Pipelines Company (AOPC) over two or three bond deals, sources said. AOPC will receive fixed tariff payments from Aramco for 25 years under a user lease rights agreement between them.

After the first bond sale – already delayed from the fourth quarter – missed its size target, those plans are almost certain to change as increasingly cautious investors are spoiled for choice. The GIE declined to comment.

A likely $12-14 billion loan backing a similar deal for Aramco’s gas pipelines is also expected to be refinanced through multiple bond sales in the same way.


The tough market conditions contrast sharply with most of the past few years, when Gulf governments and companies issued record amounts at historically low rates and investors sought opportunities to deploy ample liquidity.

Fitch Ratings, which expected an “A” rating for the bonds, said ahead of the issuance that “failure to refinance the bridge facility in a timely manner” could result in negative rating action.

Some Gulf investors bought some of the GIE Pearl paper, which had tranches with a weighted average life of 10-1/2 and 23.7 years. Read more

“I think it was right around fair value. But at IPT (initial pricing thoughts) there was concern that if it did, with the usual crunch, it would end up getting too expensive,” said a region-based investor, who also invested in bonds issued by Abu Dhabi solar company Sweihan, which he said had “the added benefit of green uses”. Read more

Even some investors in Saudi Arabia saw better deals elsewhere, including one in Riyadh saying that while the deal is widely seen – including by Fitch – as carrying Aramco risk, it was “a bit different because the company is based in Luxemburg”.

“There were better opportunities… (including from) SNB and that’s why we decided not to go there,” he said, referring to a $750 million sale last week of “sustainable” sukuk by Saudi Arabia’s largest bank. Read more

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Reporting by Yousef Saba; Additional reporting by Saeed Azhar in Dubai and Aziz El Yaakoubi in Riyadh; Editing by Kim Coghill

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