Saudi Aramco, Riyadh, on March 27 announced the signing of a share purchase agreement to acquire a 70 percent majority stake in Saudi Basic Industries Corp. (SABIC) from the Public Investment Fund of Saudi Arabia (PIF) in a private transaction for SAR259.125 billion (SAR123.39 per share), which is equivalent to US$69.1 billion. What is being called the Mideast’s largest-ever deal has been under negotiation for a while, and came after Saudi Aramco withdrew earlier plans to do an initial public offering (GM Aug. 24, 2018).
Saudi Aramco may issue its first-ever international bonds as early as next week for about $10 billion to help fund the acquisition, according to Bloomberg, citing people familiar with the matter, laying open company financials for the first time since nationalization some four decades ago.
The remaining 30 percent of publicly traded shares in SABIC are not part of the transaction, and Saudi Aramco has no plans to acquire those shares. After the news, according to Bloomberg the public shares recorded their largest intraday climb since December, moving to SAR 127.20, or up 2.4 percent, as of 10:03 a.m. on March 28.
SABIC has global operations in over 50 countries with 34,000 employees. In 2018, SABIC’s consolidated production volume across its various business units was 75 million mt, and it recorded net income of $5.7 billion, annual sales of $45 billion, and total assets of $85 billion.
“This transaction is a major step in accelerating Saudi Aramco’s transformative downstream growth strategy of integrated refining and petrochemicals,” said Saudi Aramco President and CEO Amin Nasser. “SABIC is a world-class company with an outstanding workforce and chemicals capabilities. As part of the Saudi Aramco family of companies, together we will create a stronger, more robust business to enhance competitiveness and help meet rising demand for energy and chemicals products needed by our customers around the world.”
Saudi Aramco said the acquisition is in line with its long-term strategy to drive growth through an enhanced downstream portfolio by increasing global participated refining capacity from 4.9 million to 8-10 million barrels per day by 2030, of which 2-3 million barrels per day will be converted into petrochemical products. This Downstream portfolio will consume significant quantities of Arabian crude oil.
Saudi Aramco and SABIC already have petrochemicals production capacity of 17 and 62 million mt/y, respectively.
“Expansion for Saudi Aramco into further downstream exposure offers protection in a lower oil demand outlook,” Wood Mackenzie Senior Vice President of Chemicals Steve Zinger told Bloomberg. He said the acquisition can allow wider collaboration and avoid competition, as the two have been overlapping in petrochemicals. SABIC was reported to have recently approached OCI NV, Amsterdam, about a possible acquisition of its methanol business (GM March 8, p. 1).
In addition to downstream chemicals and plastics, PIF will likely be looking at other international investments, according to Bloomberg, citing PIF’s investments in Tesla Inc., Uber Technologies Inc. and $45 billion commitment to SoftBank Group Corp.’s Vision Fund.
As for fertilizer, SABIC has been moving forward in putting all of its agri-nutrients companies under one holding company (GM Jan. 4, p. 23; Nov. 9, 2018), with Saudi Arabian Fertilizer Ltd. (SAFCO) signing a nonbinding Memorandum of Understanding (MOU) to acquire that company.
The holding company, named SABIC Agri-Nutrients Investments Co. Ltd., will initially be wholly-owned by SABIC, and includes its stakes in Ma’aden Phosphate Co. (30 percent), Ma’aden Wa’ad Al-Shamal Phosphate Co. (15 percent), Gulf Petrochemicals Industries Co. (33.33 percent), Al-Jubail Fertilizer Co. (Al-Bayroni) (50 percent), and National Chemical Fertilizer Co. (Ibn Al-Baytar) (50 percent). SABIC said in November the integration process was expected to be completed by the end of 2019.
Under the MOU, SABIC and SAFCO will seek to reach an agreement on the value of the new company. If a deal can be reached, SAFCO would make an offer to buy SABIC Agri-Nutrients Investments Co. in cash or shares or a combination of both, SAFCO said in November (GM Nov. 9, 2018).
SABIC owns a 42.99 percent interest in SAFCO.
SABIC currently lists its fertilizer capacities as urea 5 million mt/y, ammonia 3.4 million mt/y, DAP/MAP 1.5 million mt/y, and NPK/NPS/UCS 900,000 mt/y.