Saudi Aramco completes $69 billion Sabic deal, extends payment window amid

Saudi Aramco completed the purchase of its 70% stake in the kingdom’s petrochemical giant Sabic from the Saudi Public Investment Fund, it announced Wednesday, tying the knot on one of the largest ever deals in the global chemicals industry.

The state oil company also announced an extension of its $69.1 billion payment plan — to be in staggered instalments between 2020 and 2028, an increase of three years from the previous plan — as lower oil prices hit by the coronavirus pandemic take a toll on its earnings. 

Aramco’s net income dropped by 25% in the first quarter of 2020. The initial deal would have seen payment completed in 2021, but was first extended late last year to 2025.

The fall in oil prices since the initial deal announcement means that Aramco will be paying the Public Investment Fund a premium of nearly 30% on Sabic’s current price. When the acquisition was first announced in March 2019, shares of Sabic were trading at 123.4 riyals ($32.89) apiece. They’re now trading at 89 riyals per share. 

Sabic will retain its listing on the Tadawul, the kingdom’s stock exchange, and will continue working within in its legal regulatory framework, the company said.

The purchase was described as strategic on multiple fronts: to expand and diversify Aramco’s downstream refining capacity, and to bolster the PIF’s balance sheet to enable it to push ahead with ambitious investments meant to help diversify the Saudi economy in line with Crown Prince Mohammed bin Salman’s Vision 2030. 

The transaction “is consistent with Aramco’s long-term downstream strategy to grow its integrated refining and petrochemicals capacity, and create value from integration across the hydrocarbon chain,” Aramco and the PIF said in a joint press release issued Wednesday. Last year, Aramco and Sabic registered a combined petrochemicals production volume of almost 90 million tons, the statement said.

The new funds for the PIF should help it in its drive to purchase large stakes in international companies, which it’s been doing voraciously as so many companies’ shares sell at dramatic discounts globally due to the pandemic and economic shutdowns.

The PIF has made roughly half-billion-dollar stakes in companies including Carnival Corp, Live Nation, Walt Disney, Marriott International, Bank of America and Facebook,  among others, as well as a $714 million stake in Boeing. At the end of May, the Saudi central bank transferred $40 billion of its foreign reserves to the kingdom’s wealth fund. 

The purchases come amid the worst financial downturn for the kingdom in decades, with the double blow of the coronavirus and low oil prices forcing it to enact austerity measures including cutting public spending and tripling its value-added tax.