4 International Financing Review September 8 2018TOP NEWS
Torrid September for EM 06 Turkish banks increase pricing 06 Funding Circle’s cornerstone 07
Aramco in talks on Sabic financing
n Loans Potential US$50bn-$70bn financing would be Gulf’s largest ever deal
BY SANDRINE BRADLEYOil and gas giant SAUDI ARAMCO is
holding preliminary talks with
banks about a financing of up to
US$70bn to back its acquisition
of a majority stake in Saudi
petrochemical firm SABIC.
Aramco is looking at buying a
strategic stake in Sabic, the world’s
fourth-biggest petrochemicals
company, from Saudi’s Public
Investment Fund, which owns a
70% stake worth around US$70bn.
Bankers say a potential financing
of US$50bn-$70bn is a strongpossibility. A deal of this size would
set a new record for the region and
would give sovereign wealth fund
PIF cash to fund Saudi Arabia’s
ambitious Vision 2030 plan to
diversify its oil-dependent economy.
“This is the big one. The deal
of the decade in terms of
quantum,” a banker said.
Aramco’s proposed acquisition
of a stake in Sabic follows Saudi
Arabia’s postponement in August
of plans to raise up to US$100bn
by listing 5% of Aramco, in what
would have been the world’s
biggest-ever IPO.One US investment bank’s
loans team held discussions with
Aramco last week and further
talks about the financing are
expected to get under way in
earnest this week, after PIF signs a
separate US$11bn loan that will
also help to fund Saudi Arabia’s
economic transformation plans.
“There have been soft - but
high-level - discussions. I think
Saudi is trying to make banks
focus on the PIF deal but is also
preparing banks for what is
coming,” the banker said.
Bankers expect a bond-heavystructure for the Aramco deal,
with around 80% of the total
consisting of one-year or two-year
bridge loan to bond issues and 20%
of the deal consisting of a five-year
term loan. Bankers expect Aramco
to issue bonds to refinance the
bridge loans in 2019.
Aramco is expected to approach
relationship banks to discuss how
a deal could be structured and will
follow these discussions with a
request for proposals. Banks will
be seen on a bilateral basis.
The size of the potential
financing will require someRefinitiv deal sets pulses racing
n Loans/Bonds Credibility of projected cost-savings likely to prove key to investor demand
BY MAX BOWER, NATALIE HARRISONREFINITIV, Thomson Reuters’
Financial & Risk division, has
fully launched its US$13.5bn-
equivalent debt package, the
largest buyout financing since
the financial crisis and a major
test of the leveraged finance
markets on both sides of the
Atlantic.
The launch has been eagerly
awaited since the deal was
underwritten in January and its
size means that it has been priced
to attract support in Europe and
the US.
The financing backs private
equity firm Blackstone’s
purchase of a 55% stake in TR’s
financial data and technology
division (which includes IFR),
which will be renamed Refinitiv
when the acquisition closes (the
expected close is October 1).
The debt package is divided
into US$8bn of loans and
US$5.5bn of high-yield bonds.
Those debts, combined with
separate payment-in-kind notes
(with a 14.5% coupon), will result
in annual interest payments of
US$880m at current price talk. Aseparate US$750m revolving
credit facility will also need
servicing.
The seven-year Term Loan B
comprises a US$5.5bn facility
and a US$2.5bn-equivalent euro-
denominated facility. Price
guidance on the dollar loan is
400bp-425bp over Libor and the
euro loan is offered at 425bp
over Euribor.
“The banks had no choice but
to price it attractively and it’ll be
interesting to see how it goes,” a
loan investor in London said.
The US$5.5bn-equivalent high-
yield bond financing includes two
US dollar tranches: a US$2bn 7.5-
year non-call three senior secured
first-lien bond, and a US$1.8bn
eight-year non-call three senior
unsecured bond. Initial price
thoughts are low 7% area and low
9% area, respectively.
Two euro-denominated
tranches are also on offer with
the same maturities and
seniority. They will be sized at
US$1bn-equivalent for the
7.5NC3, and US$700m-
equivalent for the 8NC3. Initial
price thoughts are 5% area and
7% area, respectively.The bonds are expected to
price on September 18.
“It’s six different tranches of
debt so it just needs to be
managed properly,” a person
familiar with the deal said.
“It’s pretty unique in buyouts
to have secured bonds in a
capital structure. You can buy a
sizeable liquid bond as part of
the buyout - the market hasn’t
seen that before.”COST CONCERNS
The deal is being marketed
with leverage of 4.25 times
secured and 5.25 times
unsecured, based on adjusted
Ebitda of US$2.5bn, which
includes US$650m of cost
savings from the business’s
reported Ebitda of US$1.9bn.
In order to buy the deal,
investors will have to buy into
the adjustments and cost savings
forecast, the loan investor said.
A portfolio manager in London
said that he had calculated that
leverage for the deal is “nearer
six and seven times”.
John McClain, a portfolio
manager at Diamond Hill Capital
Management in New York, saidthe scale of the adjustments was
off-putting.
“It’s very late cycle. I don’t
really like it when you see a deal
with this order of magnitude of
projected cost savings as you
really don’t know if and when
they will be realised,” he said.
“It will be a bit of a test for the
market given the size of the
deal. But Blackstone and its
partners have a good reputation
and deep pockets.”
Moody’s forecasts pro-forma
leverage of 7.6 times Ebitda on a
GAAP basis and 7.2 times on a
non-GAAP basis, while Fitch puts
senior leverage at 6.1 times and
total leverage at 7.5 times.
“Although the opportunity to
remove US$650m in costs ...
would be a credit positive on its
own, the cost savings are expected
to be overwhelmed by interest
expense,” said Fitch analyst Jack
Kranefuss. “As such, Refinitiv will
need growth to de-lever. However,
we expect growth prospects over
the short-term to be lacklustre
due to the absence of focused
investment in prior years.”
Senior managing director at
Blackstone Martin Brand said at4 Top news 2250 p4-11.indd 4 07/09/2018 18:27: