Saudi Arabian Oil Co (Aramco) on Wednesday said that it is buying a majority stake in petrochemicals behemoth Saudi Basic Industries Corp (SABIC) for US$69.1 billion, a deal that gives the crown prince’s ambitious reform program a massive cash boost.
The 70 percent stake purchase effectively merges the kingdom’s two largest companies, handing its top sovereign wealth fund about the same amount it had expected from a much-delayed Aramco initial public offering (IPO).
The deal, mooted last year, lends Saudi Arabian Crown Prince Mohammad bin Salman greater fiscal flexibility to pursue his “Vision 2030” reforms agenda after journalist Jamal Khashoggi’s murder and a sweeping crackdown against dissent left many investors spooked.
The company did not say how it would finance the deal, one of the biggest in the global industry.
Saudi Arabian Minister of Energy and Industry Khalid al-Falih hailed it as a “historic deal,” saying the biggest winner from the transaction was the national economy.
Saudi Arabia had sought to raise billions of US dollars through a historic Aramco public offer to diversify the economy of the world’s largest oil exporter and create jobs, but the plan has suffered a series of delays.
Observers see the acquisition of a controlling stake in SABIC as a complex alternative to boost the coffers of the Saudi Arabian Public Investment Fund (PIF), which is leading efforts to transform the petro-state to a technology-focused economy.
Saudi Arabian officials said that the state-owned enterprises would benefit from the synergy.
“This is a win-win-win transaction and a transformational deal for three of Saudi Arabia’s most important economic entities,” PIF managing director Yasir al-Rumayyan said in a statement. “It will unlock significant capital for PIF’s continued long-term investment strategy, underpinning sectoral and revenue diversification for Saudi Arabia.”
SABIC, Saudi Arabia’s largest publicly listed non-oil company, is said to have a market capitalization of about US$100 billion — the same amount the kingdom had sought to raise from Aramco’s IPO.
“Aramco is the Saudi entity best positioned to receive favorable financing, so this deal is the most efficient way for the PIF to obtain an influx of cash,” said Ellen Wald, author of the book Saudi Inc: The Arabian Kingdom’s Pursuit of Profit and Power.
“It is an alternative to the Aramco IPO in the short-term, because it gives the PIF some of the cash it was looking for. We may still see a publicly traded Aramco in the future,” she said.
The plan to float about 5 percent of the oil giant — expected to be the world’s largest stock sale — forms the cornerstone of a reform program envisaged by the prince to wean the economy off its reliance on oil.
However, Aramco executives have repeatedly cited unfavorable market conditions to push back the IPO, initially planned for last year.
Government officials insist that they remain committed to the IPO, despite regulatory hurdles, and that it is to go ahead by 2021.
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