Saudi Aramco sold a 49% stake in its oil pipeline network to a consortium led by US-based EIG Global Energy Partners in a $12.4 billion lease-and lease-back deal.
This will put to rest any dreams of another Aramco IPO on international markets, as we will see.
EIG is a Washington, D.C.-based investment firm that has invested more than $34 bn in energy and energy infrastructure projects around the world.
Abu Dhabi sovereign-wealth fund Mubadala Investment Co. is also a member of the consortium, which will likely eventually include Chinese and Saudi investors as well, people familiar with the matter told the Wall Street Journal.
The pipeline deal is similar to infrastructure deals signed over the last two years by Abu Dhabi’s National Oil Co (ADNOC), which raised billions of dollars through sale-and-leaseback deals of its oil and gas pipeline assets.
Aramco Oil Pipelines Company, which was formed just for that transaction, will lease usage rights in Aramco’s crude oil pipelines for 25 years in return for a tariff paid by Aramco, backed by minimum volume commitments yet undisclosed.
Aramco will remain the full owner and operator of its crude oil pipeline network, will assume all operating and capital expense risk, and will keep crude production volumes subject to Saudi government decisions.
“The transaction represents a continuation of Aramco’s strategy to unlock the potential of its asset base and maximize value for its shareholders,” Aramco said.
“It also reinforces Aramco’s role as a catalyst for attracting significant foreign investment into the Kingdom.”
The pipeline deal is the first by the company since it raised $29.4 bn in its initial public offering (IPO) in late 2019.
Aramco is restructuring its downstream to meet its hefty IPO dividend commitments to shareholders of $75 bn, and contribute to Saudi’s GDP through massive investments in a new investment drive, known as ‘Shareek’.
The oil company has resorted to borrowing to help meet its commitments. It raised $8bn from selling dollar-denominated bonds in November inflating its net debt to equity ratio last year to 55% from 26% in 2019.
Aramco recorded a $49 bn profit in 2020, a 44% year-on-year drop, insufficient to meet its dividend promise although most of it goes to the Saudi government, which owns around 98% of Aramco’s equity.
The firm must also pay $75bn to the PIF sovereign wealth fund through 2028 as the price for its 70% stake in petrochemicals firm SABIC it purchased from it, plus loan charges on deferred payments.
The “Shareek,” or “partnership” plan has very large companies, including Aramco, investing a total of $1.33 trillion in Saudi’s domestic economy over this decade, reducing the oil company’s dividends paid to the government, in order to do so.
Bloomberg News reports Aramco and SABIC would contribute 60% of the investment.
The implication is that hopes for another listing of Aramco, this time internationally, instead of Saudi exchange Tadawul, looks more and more remote.
The 2019 Aramco listing on the domestic market ensured a high price but at the cost of mostly skipping international capital, which would have recognized Aramco’s state ownership and would therefore have sought a discounted share price.
Aramco and the government did take investor-friendly steps including guaranteeing minority investors their share of an annual $75 billion dividend payment for five years.
The Shareek announcement would mean redirecting an extra $40 billion of cash flow, which would otherwise flow as dividends to the government, toward capital expenditure.
Together with Shareek, the government hopes to recoup crude revenues lost in 2020 due to the pandemic and its effect on travel, industry, and economies, and avoid an IPO for more minority shares in Aramco.