Saudi Aramco and PIF Sign Historic $69.1 Billion SABIC Deal
Saudi Arabian petroleum and natural gas giant, Saudi Aramco, recently sealed a $69.1 billion deal involving the acquisition of a 70 percent stake in SABIC, world’s fourth-biggest petrochemicals company. This deal, which happens to be one of the biggest in the global petrochemicals industry, will lead to the creation of a new, powerful entity in this sector. Aramco, as the majority shareholder, will have the right to appoint most of the directors of the new board of SABIC.
The terms of the sale to the Public Investment Fund (PIF)- Saudi’s sovereign wealth investor- were agreed to last year but it was formally concluded recently with an announcement to the Tadawul Stock Exchange.
Aramco adhered to the original valuation of SABIC’s shares that were agreed to last year, despite oil price volatility and decreasing valuations amid the COVID-19 crisis. The deal was struck at a price of SR123.39 ($32.90) per share. According to Aramco president and CEO Amin Nasser, the company’s long-term focus, financial strength and resilience have enabled it to complete this historic deal. Aramco will complete the payment for the shares via the issue of promissory notes in nine installments running up to 2028, with an immediate payment of $7 billion in August. The phased payments will prove to be less burdensome for Aramco given the oil price volatility and the high dividend commitment it made last year during its record breaking initial public offering.
Both the parties stand to gain significantly from the deal. The strategic integration of Aramco’s upstream production and downstream chemicals feedstock production with SABIC’s chemicals platform will create opportunities for selective integration synergies that will spur growth and add value for shareholders. Aramco will get some significant improvements given SABIC’s huge scale of operations and global presence. SABIC will benefit from Aramco’s expertise and additional scale, technology and also the investment potential, and growth opportunities in the integrated energy and chemicals production sector that Aramco will bring.
The PIF, on the other hand, stands to benefit from a cash stream that will fund its investments in select, high-impact projects within Saudi Arabia.
The deal is seen as a strategic, win-win situation for the parties involved as well as the Kingdom. It is expected that the deal will contribute significantly to the goals set under the Saudi Vision 2030.