Saudi Aramco seeking review of Sabic price deal

State-owned oil firm Saudi Aramco is seeking to lower the price of the acquisition of a 70% stake in petrochemicals maker Sabic, following the collapse in oil prices due to Covid-19, and against the back of a slash in spending by the government. Aramco is also looking at the possibility of cutting down the size of the initial instalment payment for the purchase to Sabic’s owner, the Saudi Arabian sovereign wealth fund known as the Public Investment Fund, according to Bloomberg and Reuters reports.

Aramco had last year agreed to purchase the controlling stake in Sabic from PIF for US$69.1 billion, said to be one of the biggest deals in the global chemical industry.

The transaction was priced at US$32.86 per Sabic share, when the deal was announced in March 2019, but its shares have dropped by more than half due to the oil price crash and pandemic. Also, Sabic recorded its second straight quarterly loss in the first quarter.

Based on its current share price, Sabic’s total market value has been slashed by 40% to around US$56.5 billion, which would make the value of Aramco’s planned stake around US$40 billion.

The talks are in early stages and it’s not clear whether an agreement will be reached.

Sabic CEO Yousef al-Benyan had told a virtual news briefing recently that Aramco has committed to complete the acquisition of a controlling stake in Sabic by the second quarter and he did not forsee any changes in the timeline.

The acquisition of Sabic is a key part of Aramco’s strategy of moving downstream from oil production into chemicals. It will also serve as a way to help the PIF raise cash to fund its investment plans. With crude prices down more than 50% since the start of the year, Aramco is looking at alternatives to raise funds.

Saudi Arabia recently announced austerity measures with a triple value-added tax and also cut the cost-of-living allowance for government workers as part of a US$27 billion plan to boost revenue and reallocate spending for health care and to aid businesses.

(PRA)

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