Saudi Aramco closes SABIC acquisition; payment terms changed

Dubai — Saudi Aramco on June 17 said it completed the share acquisition of a 70% stake in petrochemicals company Saudi Basic Industries Corporation, or SABIC, from the Public Investment Fund, the sovereign wealth fund of Saudi Arabia, for a total purchase price of Riyal 259.125 billion ($69.1 billion).

However, the transaction terms have been changed to increase the timeline over which Aramco makes the payments by almost three years. An upfront cash payment of 36% of the deal value has also been eliminated from the deal.

When the deal was first announced in March 2019, the full payment for the acquisition was to be made by the close of the first half of 2020. Then, in November 2019, Aramco said it would delay fully paying for the acquisition by four years -- until September 2025 -- under terms of a new deal agreed. At the time, Aramco said that 36% of the purchase price would be paid in cash up front, while 64% would be paid in the form of a seller loan. The seller loan is to be secured by four separate bonds, issued by the oil company to the PIF.

Now, the whole transaction will be funded via a seller loan, and there will be no up-front payment. Moreover, the series of payments are now scheduled to end in April 2028, as opposed to the previous September 2025 deadline.

Aramco could not be reached for comment on why the payment terms have changed.

Aramco, like all oil and gas companies, has been hit by the economic downturn caused by the COVID-19 pandemic and the resulting oil price crash.

The state-run oil giant, in its Q1 2020 quarterly earnings report, said its net income declined 25% on the year to $16.7 billion in the quarter.

SABIC's value has dropped 29% since the original deal was brokered. On June 17, Sabic had a valuation of $71.3 billion making Aramco's 70% stake now worth just $49.9 billion, far below what Aramco will pay.

The acquisition of the SABIC stake is part of Aramco's strategy to build its downstream footprint by growing its integrated refining and petrochemicals capacity to add value across the hydrocarbon chain.

It specifically enhances Aramco's chemicals strategy by transforming Aramco into one of the major global petrochemicals players.

Combined, in 2019 Aramco and SABIC recorded petrochemicals production volume of nearly 90 million mt, including agri-nutrient and specialty products.

"It is a significant leap forward which accelerates Aramco's downstream strategy and transforms our company into one of the major global petrochemicals players," Aramco President and CEO Amin Nasser said in a statement June 17. "The strategic integration of our upstream production and downstream chemicals feedstock production with SABIC's chemicals platform is expected to create opportunities for selective integration synergies that support growth."

Following the deal announcement June 17, Saudi Aramco shares were trading at Riyal 32.70/share ($8.72) on Tadawul. That compares to its IPO price in December of Riyals 32/share ($8.53), which gave the company a valuation of $1.7 trillion at the time.