Saudi Aramco acquires 70% stake in SABIC for $69.1b

FILE PHOTO: A sign of Saudi Aramco's initial public offering (IPO) is seen during a news conference by the state oil company at the Plaza Conference Center in Dhahran, Saudi Arabia November 3, 2019. REUTERS/Hamad I Mohammed/File Photo

Saudi Aramco has completed its purchase of a 70% stake in petrochemicals company Saudi Basic Industries for $69.1 billion and extended the payment period by three years to 2028, providing a cushion against weak oil prices.

The deal values Saudi Basic Industries Corp (SABIC) at 123.39 riyals ($32.90) per share, 27.5% above the company’s share price of 89.40 riyals, as the coronavirus outbreak has hurt demand for petrochemicals products and dented SABIC‘s shares.

“It is a significant leap forward, which accelerates Aramco‘s downstream strategy and transforms our company into one of the major global petrochemicals players,” Aramco CEO Amin Nasser said in a statement.

SABIC is the world’s fourth-biggest petrochemicals company.

Aramco and the Saudi state Public Investment Fund (PIF) amended the payment structure for deal, Aramco said in a bourse filing on Wednesday.

Following a seller loan provided by the PIF, Aramco will pay instalments and loan charges until 2028, extending a previous 2025 deadline.

The first $7 billion payment is due on or before Aug. 2, 2020, with the last instalment, a loan charge of $1 billion, on or before April 7, 2028.

The transaction was funded through promissory notes issued to the PIF at the deal‘s close on Tuesday, Aramco said.

Under a previous agreement, 36% of the purchase price – roughly $25 billion – would have been paid in cash on completion.

A source familiar with the deal, asking not to be named, said the extended payment schedule aimed to enable Aramco to pay dividends to the government.

Some analysts have voiced concerns the oil slump would make it difficult for Aramco to pay the government this year, although its first-quarter dividend was in line with a plan for a $75 billion 2020 payout.

“The entire AramcoSABIC deal is about managing cash flow, duplicated costs and access to debt markets within the same group,” Hasnain Malik, head of equity strategy at Tellimer, said.

He said a guaranteed dividend stream would give short-term protection to Aramco and some minority shareholders, but raised the question of whether the share price reflected long-term risk to the oil price.

The deal will inject billions of dollars into the PIF that can finance plans to diversify the largest Arab economy beyond oil exports, including tourism projects and a mega business zone.

Royal Bank of Canada said the new terms, reflecting the weaker macro environment, were clearly an improvement for the buyer, adding that was “not surprising given recent deal renegotiations in the energy space”.

Reuters

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.