From The Wall Street Journal
Saudi Arabia’s national oil company has agreed to buy a 70% stake in Saudi Basic Industries Corp., the kingdom’s petrochemicals firm, for $69.1 billion, giving Crown Prince Mohammed bin Salman’s agenda a massive jolt of cash.
The merger of Aramco and Sabic, as the petrochemicals firm is known, would join the country’s two largest companies. In doing so, the deal will hand the Saudi sovereign-wealth fund roughly the same amount of money it had expected to reap from the now-postponed Aramco initial public offering.
The deal announced Wednesday evening in Riyadh culminates more than a year of negotiations between two companies that were reluctant to tie up but did so at the urging of Prince Mohammed, according to Saudi officials.
The agreement gives Prince Mohammed a freer hand to pursue an ambitious domestic agenda, as he faces sharp criticism abroad for the Saudi government’s role in the murder of journalist Jamal Khashoggi, the civilian casualties in the Yemen war and the detention and torture of human rights activists.
The 33-year-old royal wants to use the kingdom’s Public Investment Fund, or PIF, to diversify the economy of the world’s largest oil exporter by making investments across the world and developing entirely new industries in tourism and entertainment at home.
The sovereign-wealth fund is the main vehicle for those plans. PIF has become one of the world’s biggest tech investors through its partnership with SoftBank Group Corp. and its roughly $100 billion Vision Fund. It has invested in Uber Technologies Inc. and partnered with Blackstone Group LP in a $20 billion infrastructure fund.
Saudi Arabia had originally planned to publicly list Aramco in 2018 and give the proceeds to PIF as part of Prince Mohammed’s wider reform program, known as Vision 2030. But the IPO planned stalled, adding urgency to alternative ways to fund PIF and the prince’s agenda.
“This is a way for the PIF to use Aramco to increase its liquidity…to get money they would have gotten from an IPO,” said Ellen Wald, the president of Transversal Consulting and author of Saudi Inc., a corporate history of the kingdom.
Marrying Aramco and Sabic will create one of the world’s biggest makers of petrochemicals, a part of the oil business that executives and analysts have said will be resiliently profitable even if alternative energies take hold in the future and crude prices fall. Aramco executives said Wednesday the deal would help it achieve its goal of doubling its oil-refining capacity by 2030.
Aramco, known formally as Saudi Arabian Oil Co., didn’t disclose Wednesday how it would finance the acquisition. The company has considered using a corporate bond to buy Sabic, with Aramco executives traveling to the U.S. last month to gauge investor appetite for a roughly $10 billion issuance, The Wall Street Journal as reported.
It had considered issuing up to $40 billion in what would have been one of the world’s largest ever corporate-bond sales, but has since favored a smaller issuance and an agreement to pay PIF over time for the Sabic stake.
Aramco has a relatively small amount of debt compared with other global oil giants, such as Exxon Mobil Corp. and Royal Dutch Shell PLC, making it easy for the Saudi firm to borrow cheaply. The Saudi oil giant doesn’t disclose financials but has said it would issue audited statements with a bond sale.
Aramco agreed to pay 123.40 Saudi riyals a share for the 70% stake in Sabic, slightly below the stock’s closing price on Wednesday of 124.2 riyals. The petrochemical firm’s shares were trading at roughly 129 Saudi riyals in July ahead of reports that Aramco was considering buying PIF’s stake.
Aramco executives had pushed to pay nearer 100 Saudi riyals a share for Sabic, the Journal reported in September. In the end, the oil company agreed to pay closer to market price in part to ensure that public shareholders don’t lose out in a deal, according to people familiar with the matter.
Sabic, which employs about 34,000 people and has operations in 50 countries, currently lists 30% of its shares on the Saudi stock exchange and has a market capitalization of roughly $100 billion based on its listed price. Aramco said it had no plans to buy the rest of the company.
