Why would Saudi Aramco want to buy a stake in Sabic?

July 20, 2018 11:20 am


Saudi Aramco, the biggest oil company in the world hopes to buy a stake in Saudi Sabic the 4th largest petrochemical company on the globe.

It was Reuters which exclusively broke this news item.

“Saudi Aramco has invited banks to pitch for an advisory role on the potential acquisition of a strategic stake in Saudi Basic Industries Corp,” two sources with direct knowledge of the matter told Reuters.

Reuters said the move could boost the state oil giant’s market valuation ahead of a planned initial public offering (IPO), despite speculation that the IPO is in danger of never taking place.

Related: What Aramco IPO? It may never happen, and here’s why

Rationale

Aramco plans to boost investments in refining and petrochemicals to secure new markets for its crude and sees growth in chemicals as central to its downstream strategy to lessen the risk of a slowdown in oil demand, according to Reuters.

Bloomberg said a potential deal between Aramco and SABIC could enable the Public Investment Fund (PIF) to raise billions of dollars it had hoped to collect from Aramco’s stalled IPO.

Aramco’s further boosting of its downstream (non-production operations) petrochemicals portfolio could help attract potential investors for the IPO, which aims at raising $100 bn from the sale of an Aramco valuation at $2trn, Reuters added.

VIDEO: Are Aramco’s net H1 2017 revenues enough to spur on IPO interest?

Riyadh-listed SABIC is 70% owned by PIF that also owns the shares of Aramco.

“The process is in the initial stages and Aramco may or may not decide to go ahead with the deal,” the sources said.

An Aramco press release later said “Consistent with the company’s strategy of rebalancing its portfolio by moving further into downstream and the petrochemical sector, in particular, the company has been evaluating a number of acquisition opportunities, both local and global.”

“Saudi Aramco confirms that it is engaged in very early-stage discussions with the Public Investment Fund (PIF) regarding acquiring a strategic interest in SABIC by way of a private transaction. These discussions are preliminary and there is no certainty that any such transaction will take place. Saudi Aramco has no plans to acquire any publicly held shares of SABIC.”

Related: Saudi Aramco has a major ‘Ace in the hole’ to maximize value of its IPO

 SABIC and ARAMCO already active buying stakes

Aramco’s push into chemicals also includes a mega project it is building at home with SABIC.

The $20 billion project would build a complex that converts crude oil into chemicals directly, bypassing the refining stage, reported Reuters.

SABIC has a market capitalization of $102.7 billion, according to CNBC.

According to a June Reuters report, SABIC has this year bought a 25% stake in Clariant which has a market cap of $7.8 billion and is expected to intensify research and development with the Swiss specialty chemicals maker as well as hike its stake over time, sources told the media.

Saudi Aramco in 2015 bought half the synthetic rubber business of Germany’s Lanxess for around $1.4 billion in a move that shows Saudi companies are increasingly trying to raise their influence outside the kingdom as part of Vision 2030 plan.

SABIC has a strong plastics business since its $11.6 billion purchase of GE Plastics in 2007.

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Hadi Khatib
By Hadi Khatib
Hadi Khatib is a business editor with more than 15 years' experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about it.



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