The long awaited acquisition of Saudi Basic Industries Corporation (SABIC) by Saudi Aramco is finally here.
In a press release, Amin Nasser, Aramco's CEO, said that Aramco has acquired a 70 percent interest in SABIC, worth $ 69.1 billion. Aramco's CEO, Nasser, affirmed that "the deal represents an important step in accelerating Saudi Aramco's transformational downstream growth strategy."
Aramco has acquired the shares of the Saudi Public Investment Fund (PIF) for a share price of 123.39 riyals, which represents a slight discount from the closing price of SABIC on Wednesday. The closing price has been positively valued by analysts as the acquisition is considered a strategic, long-term investment, especially considering that SABIC is one of the most defensive non-cyclical segments.
This may still be the case Be critical as Aramco has considered a much larger rebate in PIF's negotiations. Nasser also said that Aramco and SABIC will work together to create a stronger and more robust company that can meet the growing global demand for energy and chemical products.
PIF's CEO, Yasir Othman Al Rumayyan, said the deal was a win-win-win transaction that also saw the benefits for Aramco, SABIC and PIF. For the PIF, the goal was to generate additional money for the SWF to invest and achieve higher returns than was currently possible. The PIF as the main investment fund of the Saudi crown prince Mohammed bin Salman was commissioned to finance and support the progressive economic diversification and liberalization of the Saudi economy, as officially announced in Saudi Vision 2030 and the NIDLP
is a real winner, considering the positive The impact of a merger between the world's largest oil company and the world's largest petrochemicals company. With the acquisition, Aramco will be able to achieve its goal of increasing its refining capacity from 4.9 million bpd to 8-1
There is a long list of questions that need to be asked and answered. The first will be how to integrate SABIC's Saudi Arabian and international operations into Aramco, which is largely a Saudi Arabian based and managed company. Undoubtedly, Saudi Aramco's management and technical standards and processes are first-rate, some even better than most IOCs. The ongoing leadership changes in Aramco have motivated the company to become a major power player both inside and outside the kingdom. The situation at SABIC is different. The petrochemical giant is facing increasing international pressure, but continues to enjoy a strong position in the Saudi markets, benefiting from an active acquisition experience of the 1990s and 2000s. SABIC's operations in Europe and America are state-of-the-art, with its European subsidiary leading the market. Within the kingdom, however, SABIC's historic position as a leader is under pressure, and some even claim that without the support of Saudi Arabia, the company would already be in serious trouble. Also, management issues are challenging and can lead to conflicts or merger issues with the new parent company. Based on insider knowledge, Aramco will have to deal with a much more conservative and family-led new child in the family.
A second question that is currently being asked is how the Aramco deal is funded. If you look at Aramco's current cash flow, the oil giant will not have a real problem financing the deal. He may be involved in the necessary financial resources of the international financial markets. However, the deal is more likely to involve a spread financing arrangement that allows Aramco to pay over a longer period of time. This would also mean that the much-anticipated deal, which was intended to generate substantially additional cash inflows for the PIF, is not as lucrative or effective as the media expects. With a long payment period, PIF's cash inflow will not be $ 69.1 billion in one fell swoop, but spread over years. This could mean that the SWF still needs to find other sources of funding for its national and international project acquisitions.
The mainstream analysis revisits the fact that the deal to finance the Saudi Vision 2030 is being carried out by Crown Prince MBS indicating that this is the case. The only way to accelerate the MBS dream is to fully finance the Aramco SABIC deal through international debt. Even if several large bonds are issued, MBS does not generate $ 70 billion at a time. The management of Aramco is also too conservative or prudent to take this route without caution. By entering the international capital markets, Aramco will be forced to open its books and provide detailed financial reports to potential financial institutions. Related topics: A "perfect coup" unfolds in Algeria
One possible, unresolved issue is the fact that Aramco's acquisition of SABIC has made it a fully integrated international oil company. Through the global acquisition of SABIC businesses, Aramco has not only increased global downstream exposure but also potential geopolitical issues or legal threats such as NOPEC or the Justice Against Sponsors of Terrorism Act (JASTA). Aramco has become a major downstream giants and has entered the premises of IOCs, dealers and chemical manufacturers around the world. The competition is fiercely contested and requires major changes in SABIC's worldwide activities and the adaptation of Aramco's upstream focus with a bang. As noted by Aramco, it has appointed banks such as JPMorgan Chase & Co., Morgan Stanley, Citigroup Inc., HSBC Holdings Plc, and National Commercial Bank to manage potential bond sales.
There is enough appetite for a market in the market Selling bonds in Saudi Arabia is still a problem. Geopolitical risks and concerns about the internal stability of the Saudi royal family could reduce the appetite of large financial institutions. The kingdom could be listed in several emerging market indices (FTSE / MSCI), but the appetite for investment is constrained by the impact of Khashoggi's murder, increased oil market volatility and pressure on the Crown Prince's position.
Some analysts expect the combination of Aramco and SABIC to be an important step forward in Aramco's IPO. In view of the need for financial reporting and the development of Aramco's books of account, a subsequent IPO, including SABIC activities and assets, may now be considered.
By Cyril Widdershoven for Oilprice.com
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