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Aramco closer to an IPO than ever with SABIC acquisition

Some creative financing went into ARAMCO buying SABIC from PIF to bolster IPO value

The $70bn Saudi Aramco acquisition of SABIC falls just $30 bn short of what PIF wanted from Aramco’s own IPO plans Aramco may stagger payments for the Sabic acquisition, offering flexibility in how to finance the largest deal in the kingdom’s history PIF aims to control AUM worth $2 trillion by 2030, including so far stakes in Uber, Japan’s vision fund, and $500bn NEOM

It’s a big deal. The nearly $70bn Saudi Aramco acquisition of SABIC from the Public Investment Fund (PIF) is as big as it gets, falling just $30 bn short of what PIF wanted from Aramco’s own IPO plans to sell a 5% stake.

While the cash comes in handy for PIF, the sovereign wealth fund has other ideas. It wants to make the IPO more attractive to investors, come 2021.

Two birds in one stone.

The SABIC sale 

Aramco said Wednesday it is buying the 70% SABIC stake owned by PIF for $69 billion, or 123.4 riyals ($33.3) per share, Aramco announced in a statement.

SABIC, Saudi Arabia's largest publicly listed non-oil company, is said to have a market capitalisation of around $100 bn.  

The company did not say how it would finance the deal, one of the biggest in the global industry.

Saudi Energy Minister Khalid al-Falih hailed it as a "historic deal", saying the biggest winner from the transaction was the national economy.

 Saudi officials said the state-owned enterprises would benefit from the synergy.

However, the Financial Post (FP) said Aramco had planned a bond issuance to finance the deal, quoting Al-Falih as saying earlier in March.

“Aramco may stagger payments for the Sabic acquisition, offering flexibility in how to finance the largest deal in the kingdom’s history,” Al-Falih said in January.

Saudi Aramco picked banks including JPMorgan Chase & Co., Morgan Stanley, Citigroup Inc., HSBC Holdings Plc, National Commercial Bank to manage the bond sale,  according to reports.

PIF managing director Yasir al-Rumayyan said in the Aramco statement: "It (sale) will unlock significant capital for PIF's continued long-term investment strategy, underpinning sectoral and revenue diversification for Saudi Arabia."

PIF down the road

PIF aims to control AUM worth $2 trillion by 2030, including so far stakes in Uber, Japan’s vision fund, and $500bn NEOM, but the first major deal, after SABIC,  is the Aramco IPO set for a 2021 date.

The FP said Aramco plans to invest $500 billion over the next decade, and much of that will be on refineries and chemical plants.

The company wants to secure future demand for its barrels so that when the time to IPO is near, the valuation of the company is nearer $2 trillion, and a 5% sale nets $100bn to the PIF.

Aramco downstream…

Aramco currently has the capacity to produce 17 million tons of petrochemicals per year, while Sabic’s capacity is 62 million tons, said CNBC.

“By 2030, Aramco aims to increase its refining capacity from 4.9 million barrels per day to 8 million to 10 million bpd,” said CNBC.

Aramco President and CEO Amin Nasser said in a statement: “This transaction is a major step in accelerating Saudi Aramco’s transformative downstream growth strategy of integrated refining and petrochemicals.”

Sabic has operations in 50 countries and employees about 35,000 people around the world.

Investors own the remaining 30% stake in Sabic through shares listed on the Saudi stock exchange.

Aramco says it does not intend to purchase those shares.