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Oil giant Saudi Aramco completes $70 billion takeover of Sabic

Saudi Aramco has given itself more time to pay for an almost $70 billion acquisition of Saudi Basic Industries Corp. as this year's slump in oil prices stretches its finances.

Aramco announced new terms on Wednesday as it completed the purchase of a 70% stake in Sabic from Saudi Arabia's sovereign wealth fund. Aramco will push back the bulk of installments until after 2022 and delay the final one by three years until 2028.

The oil producer will make its first payment of $7 billion to the Public Investment Fund on Aug. 2, Aramco said in a statement to the stock exchange in Riyadh. Under the previous deal agreed in October, when crude was about $60 a barrel, Aramco would have had to pay $25 billion by the end of this month. Charges on a loan the PIF is providing Aramco for the acquisition now total $5.9 billion, up from $2.5 billion previously.

Brent crude's more than doubled since late April as more economies reopen from coronavirus lockdowns. But at around $41 a barrel, it's still down 37% this year, putting huge pressure on producers globally. Conserving cash on the takeover this year will help Aramco fulfill its aim of making a $75 billion dividend to shareholders.

The new terms are "positive for Aramco's balance sheet and help it withstand weaker macro conditions for even longer," Biraj Borkhataria, head of energy research at Royal Bank of Canada's European arm, said in a note to clients.

The deal effectively transfers cash from one arm of the Saudi state to another. It enables Aramco to accelerate its push to turn oil into products such as plastics, while giving the PIF more cash to increase its burgeoning investments inside Saudi Arabia and abroad, including in U.S. stocks.

Aramco, the world's biggest oil exporter, agreed in March last year to pay 123.4 riyals ($32.90) a share for the PIF's stake in Sabic, the equivalent of $69.1 billion. The rest of the chemicals maker will remain listed on the Saudi stock exchange, where a small sliver of Aramco also trades. That will prevent Aramco from being able to fully integrate Sabic.

Since the the deal was announced, Sabic's stock has dropped to less than 90 riyals. The transaction serves as a way for the PIF to get a significant cash injection, since the proceeds it was counting on receiving from Aramco's initial public offering in December fell short of expectations.

Crown Prince Mohammed Bin Salman had expected the share sale to value Aramco at $2 trillion and perhaps raise as much as $100 billion from global investors. After they balked at the Prince's numbers, Aramco settled on a smaller domestic offering, which raised about $30 billion, still the largest IPO ever.

The sovereign wealth fund, under the leadership of Yasir Al-Rumayyan, who's also Aramco's chairman, is shifting its investment focus. Five years ago it was a holding company for government stakes in the likes of Sabic and National Commercial Bank. After an aggressive period of deal-making, it now holds stakes in Citigroup, Facebook and Uber, and is one of the major investors in SoftBank's Vision Fund.

The PIF lies at the heart of Saudi Arabia's economic transformation plan known as Vision 2030, which aims to reduce its reliance on oil. The fund is meant to be an anchor investor in domestic projects like the $500 billion futuristic city of Neom, which Prince Mohammed wants to develop on the kingdom's northwestern coast.

The Sabic deal "accelerates Aramco's downstream strategy and transforms our company into one of the major global petrochemicals players," Aramco Chief Executive Officer Amin Nasser said in a statement. "The strategic integration of our upstream production and downstream chemicals feedstock production with Sabic's chemicals platform is expected to create opportunities for selective integration synergies."

Aramco has appointed its senior vice president for finance, strategy and development, Khalid Al Dabbagh, as Sabic's chairman. It also added Ziad Thamer Al Murshed, vice president of international operations, and Oliver Gerard Thorel, vice president of chemicals, to the Sabic board. Rashid Sharif, head of the local investments division at PIF, and Roberto Gualdoni have resigned from the Sabic board.


Published : June 17, 2020

By :  Syndication Washington Post, Bloomberg · Matthew Martin · BUSINESS, WORLD, US-GLOBAL-MARKETS, MIDDLE-EAST