By
Godfrey Benjamin
April 17th, 2024
The latest deal between Saudi Aramco and Sabic will help infuse more cash in the kingdom’s sovereign Public Investment Fund (PIF) which plans to use it for investments in global companies and diversify the Saudi economy.
It has been one of the toughest years for the oil markets, but Saudi Arabia’s state-owned petrochemical giant – Saudi Aramco -is looking to ink new deals. On Wednesday, June 17, Saudi Aramco Oil Co (TADAWUL: 2222) completed a 70% stake purchase in the nation’s other petrochemical giant Sabic.
The deal took place at Sabic’s share price of 123.39 riyals per share with the entire amount of $70 billion paid through the kingdom’s sovereign Public Investment Fund. Since the initial deal announcement, the oil prices in the market have crashed significantly. Thus, Saudi Aramco is paying the Public Investment Fund a 30% premium on Sabic’s current price.
However, the complete payout will happen in a staggered manner across eight years from 2020 to 2028. This is a three-year extension from the earlier proposed duration. In the official press release, Yasir Al Rumayyan, Governor, Public Investment Fund (PIF) said:
“This is a significant milestone for three of Saudi Arabia’s most important entities. It provides capital for PIF’s long-term investment strategy as it drives the economic transformation and growth of Saudi Arabia, further benefitting the people of our country; it supports Aramco’s continued growth in Downstream and enhances its international footprint; and, it provides SABIC a new strategic energy industry focused shareholder with the ability to support growth projects.”
With this acquisition, Sabic will continue its listing on Saudi’s stock exchange Tadawul. The Coronavirus pandemic has caused a major meltdown in the global economy resulting in one of the worst years for the oil markets, and so the Kingdom, in decades. Experts call it a strategic move for Aramco and PIF as it will help the latter to expand its investments in global businesses.
What Will the Deal between Saudi Aramco and Sabic Bring?
Experts are saying that the 70% purchase of Sabic by Saudi Aramco is strategic on many fronts. Firstly, it will help Aramco expand and diversify its downstream refining capacity.
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,” the press release read.
On the other hand, it helps PIF strengthen its balance sheet and further expand its portfolio of global investments. During the recent market crash, the PIF has made billions of dollars worth investments. This includes significant stake purchases in giants like the Walt Disney Company (NYSE: DIS), Live Nation Entertainment Inc (NYSE: LYV), Marriott International Inc (NASDAQ: MAR), Bank of America Corp (NYSE: BAC) and Facebook Inc (NASDAQ: FB). Besides, the PIF has also acquired a whopping $714 million worth of stake in Boeing Co (NYSE: BA).
These recent Saudi Aramco deal basically transfers cash from the kingdom’s one arm to another. However, it creates a win-win situation on all fronts. With more cash in hand, PIF can further push investments to diversify the Saudi economy. This move is very much in line with Crown Prince Mohammed bin Salman’s Vision 2030.