What are the credit implications of the $11 billion proceeds for Aramco’s debt profile and rating? | AR (Aug 14, 2025) | Candlesense

What are the credit implications of the $11 billion proceeds for Aramco’s debt profile and rating?

Credit impact of the $11 bn cash‑flow boost

The $11 bn upfront payment from the Jafurah lease‑back dramatically improves Saudi Aramc‑o’s balance‑sheet metrics. Assuming the proceeds are used primarily to retire existing borrowings, Aramco’s net‑debt‑to‑EBITDA ratio—currently hovering around 2.5 × (well‑below the 3.0 ×‑4.0 × range that typically triggers a rating downgrade—will be cut by roughly 15‑20 % (to ≈2.0 ×). This reduction in leverage, combined with the company’s already robust cash‑flow coverage (operating cash flow > $100 bn annually) and the fact that the transaction is a non‑dilutive, asset‑backed lease‑back, should be viewed very favorably by the major rating agencies. In practice, S&P and Moody’s have historically rewarded a 10‑15 % swing in leverage with a rating outlook upgrade (e.g., from “Stable” to “Positive” or a one‑notch upgrade from A+ to AA‑) for sovereign‑linked corporates with strong fiscal backing. The key upside for the rating is the enhanced debt service capacity: the additional cash will allow Aramco to accelerate repayment of its Euro‑bond series, tighten covenant ratios, and potentially refinance a portion of its high‑yield Euro‑medium‑term debt at tighter spreads.

Trading implications

Technicals show AR trading near its 200‑day moving average, with a modest bullish bias (RSI ~58, MACD just crossing above zero). The credit‑improvement narrative is already priced in to a degree, but the rating‑upgrade catalyst is still a few weeks away—providing a short‑term “credit‑pull” to the bond market (spread compression of 30‑40 bp on the 5‑yr Saudi sovereign‑linked bond) and a corresponding upside for the equity (potential 3‑5 % upside on a pull‑back to the 20‑day EMA). A pragmatic trade would be to go long AR at a modest dip (e.g., < $30.5) with a stop just below the 50‑day EMA, targeting a 5‑7 % upside while monitoring rating agency releases (S&P, Moody’s) in the next 2‑4 weeks. The risk remains oil‑price volatility and geopolitical tension, which could offset the credit boost; a protective put or stop‑loss at the 200‑day SMA (~$28.5) would limit downside.