Sabic can boost Saudi Aramco’s petrochemicals portfolio further

Sabic can boost Saudi Aramco’s petrochemicals portfolio further

Aramco in talks to buy Sabic stake

The oil giant confirms its interest in acquiring an ownership position in the petrochemical maker

August 2018

Saudi Aramco has confirmed that it is engaged in very early-stage discussions’ with Saudi Arabia’s sovereign wealth fund — the Public Investment Fund, regarding acquiring a strategic interest in global plastics and petrochemicals maker Saudi Basic Industries Corp (Sabic).

Saudi Arabia’s state-owned oil company and one of the world’s largest oil producers released a statement following media speculation regarding its interest in acquiring an ownership position in Sabic.

The statement said that Saudi Aramco has been evaluating a number of acquisition opportunities, both local and global and these evaluations are `consistent with the company’s strategy of rebalancing its portfolio by moving further into downstream and the petrochemical sector.’

It further added that `any acquisition would be a private transaction and wouldn’t involve acquiring public shares of Sabic.’

“Saudi Aramco has confirmed 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. The company has no plans to acquire any publicly held shares of Sabic,” it said.

Globally, Sabic is a major supplier of polyethylene, polycarbonate and other commodity and engineering resins. The firm — majority owned by the Saudi government — employs more than 34,000 and posted sales of almost $40 billion in 2017.

According to a Reuters report, JPMorgan and Morgan Stanley have been picked to advise on Saudi Aramco’s plan to buy a controlling stake in Sabic.

Aramco’s initial thinking is to buy the full stake owned by the PIF, but if that fails to materialise Aramco could end up with a stake in Sabic of more than 50 per cent, making it a majority owner, the report said.

Riyadh-listed Sabic, the world’s fourth-biggest petrochemicals firm, has a market capitalisation of SR 385.2 billion ($103 billion).

The potential acquisition would affect the time frame of Aramco’s planned initial public offering (IPO) set for later this year, the state oil giant’s chief executive, Amin Nasser, said in a TV interview.

The offering is the centrepiece of an ambitious plan championed by Crown Prince Mohammed bin Salman to diversify Saudi Arabia’s economy beyond oil, but preparations for the IPO, which could prove the biggest in history, have slowed.

Saudi-owned Al Arabiya television cited Nasser as saying that buying a stake in a petrochemicals company would make the state oil giant less vulnerable to price volatility.

“If the deal is completed, with relevant regulations taken into account, it will definitely affect the timeframe for the partial IPO of Saudi Aramco,” he said in a transcript provided by the government media office.

When Aramco is ready to list, the IPO timing would be up to the government to decide, Nasser said.

 “As I said in previous interviews, when Saudi Aramco is ready, the decision of going ahead with the IPO is for the state to make,” he said.

Nasser also said Aramco had a long-term goal to convert 2 million to 3 million barrels of its oil products into chemicals.

Nasser said the proposed deal with Sabic would help balance revenues from excavation and production with those from refining and chemicals, that normally remain strong even when oil prices dip.

Some sources close to the Saudi Aramco IPO process have said the plans for a domestic and international listing might be pushed further into next year or beyond.

A final decision has yet to be made by Crown Prince Mohammed, who oversees the kingdom’s economic and oil policies, the sources said. Saudi Arabia’s Energy Minister Khalid Al Falih said last month it would be “nice” to see Aramco floated in 2019, adding that the timing was not critical to the government.

Aramco plans to boost investments in refining and petrochemicals to secure new markets and sees growth in chemicals as central to its downstream strategy to cut the risk of an oil demand slowdown. 

Aramco plans to raise its refining capacity to between 8 million and 10 million barrels per day (bpd), from around 5 million bpd now, and double its petrochemicals production by 2030.

Aramco, the world’s largest oil producer, pumps around 10 million bpd of crude oil.  

More Stories