Saudi Aramco to buy 70% SABIC stake for $69bn

Saudi Aramco has agreed to purchase a 70% stake in local producer SABIC from the Public Investment Fund of Saudi Arabia in a deal valued at $69.1bn, the Saudi Arabia-headquartered oil and gas giant said on Wednesday.

The long-awaited agreement will see Aramco pay Saudi riyals (SR) 123.40 ($32.91) per share for the public investment fund’s position in the petrochemicals giant for a total of SR259.13bn. The remaining 30% of shares in SABIC are publicly traded, and Aramco has no plans to pick up those outstanding equity positions, the company added.

“SABIC will benefit from the additional scale, technology, investment potential, and growth opportunities Saudi Aramco will bring as a global leader in integrated energy and chemicals production,” said SABIC CEO Yousef Al-Benyan.

“Solidifying our relationship in this way strategically positions SABIC and Saudi Aramco to accelerate exciting developments in our global chemicals business,” he added.

Saudi Aramco has stated plans to expand its presence in the chemicals sector, and SABIC has been an active player in that move. The two companies recently selected a site in Yanbu, western Saudi Arabia, for a crude oil to chemicals (COTC) complex that will process 400,000 bbl/day of crude and produce around 9m tonnes/year of chemicals and base oils when it comes onstream in 2025.

Aramco also recently signed an agreement with France-based oil major Total to develop a $9bn petrochemicals plant in Jubail that will comprise a $5bn mixed-feed cracker and produce 2.7m tonnes/year of chemicals when it comes online in 2023-24.

The timeline for Aramco’s mooted initial public offering (IPO), which could represent the largest ever flotation by a single company, has slipped, with Crown Prince Mohammed Bin Salman stating that a longer window to a listing would give time to merge Aramco and SABIC into a single entity.

The transaction is subject to closing conditions and regulatory approvals, which, Aramco CEO Amin H Nasser told Reuters last year, could take time.

The Saudi government has stated plans to diversify its economy to leave it less reliant on oil and gas pricing, particularly in light of the sharp fall in values for the commodities since mid-2014.

The integration of Aramco, the crown jewel of the Kingdom’s economy, with downstream producer SABIC, is understood to be part of that goal, rather than having the two companies competing down the value chain.

Aramco and SABIC currently have petrochemicals production capacities of 17m and 62m tonnes/year respectively. The oil and gas major has set a target of increasing global refining capacity from 4.9m to 8m-10m bbl/day bt 2030, of which 2m-3m bbl/day will be converted into petrochemicals products.

Both players have also been active in Europe, with Aramco acquiring LANXESS’ remaining 50% stake in synthetic rubber joint venture ARLANXEO late last year, and SABIC buying a 24.99% stake in Clariant and moving to merge its specialties operations with the Switzerland-based producer’s additives and masterbatches businesses.

ANALYSTS WELCOME MOVE

“The acquisition of SABIC can allow wider collaboration and avoid competition, as the two companies more recently have been overlapping into the natural positions of the two separate businesses, particularly around petrochemicals,” said Steve Zinger, chemicals senior vice president at consultancy Wood Mackenzie in a note.

“A combined Saudi Aramco/SABIC entity would allow truly global reach and market leading positions across a strong vertically integrated portfolio of oil-to-chemicals,” Wood Mackenzie’s Zinger said.

“Three pillars we see supporting the deal for both companies are vertical integration, geographical expansion and technology transfer,” he said.

SABIC has expanded outside of Saudi Arabia and across chemistries, via acquisitions of German DSM, US Huntsman Petrochemicals, GE Plastics and more recently a large share of Swiss Clariant.

Saudi Aramco, on the other hand, has existing joint ventures in refineries, particularly in Asia, with announced plans for further major expansions.

“Acquisition is a valid parallel strategy to enhance and further this position,” Zinger said.