In major news for the global oil industry earlier this month, state-run giant Saudi Aramco said it was in talks with the Kingdom’s sovereign wealth fund over the acquisition of a potential stake in Saudi Basic Industries Corporation (SABIC).
Discussions are still at a preliminary stage, Aramco said last week, noting that it had “no plans to acquire any publicly held shares of SABIC.”
“Buying a stake in a chemical company like SABIC will have a positive impact on Aramco’s revenues,” Aramco president and CEO Amin Nasser said on Friday, adding that the deal would make the Saudi oil company less vulnerable to volatile oil prices.
Saudi Aramco is the world’s leading integrated energy and chemicals enterprise, and the largest provider of crude oil to global markets.
SABIC, whose shares trade on the Saudi Stock Exchange (Tadawul), is the largest listed company in the Gulf and the world’s fourth-biggest petrochemicals firm. Saudi Arabia’s Public Investment Fund (PIF) owns a 70 percent stake in the company.
According to Bloomberg, at current market prices, PIF’s stake in SABIC is worth about $70 billion. The wealth fund would be the biggest beneficiary of the deal, which would help it raise money for overseas investments, the agency recently reported.
Industry analysts note the acquisition will help increase market share and protect against oil price fluctuations. Argaam has compiled their views below:
Vandana Hari, founder, Vanda Insights (Singapore)
A stake in SABIC will enable Aramco to grow its footprint in the petrochemicals sector much more quickly and impressively than any organic expansion through equity in greenfield refinery-cum-petrochemical projects. Though clearly the latter is also part of Aramco’s strategy, given SABIC’s stature and an already established presence in the petrochemicals sector, this was an obvious opportunity waiting to be tapped.
Aramco’s stake in SABIC would rule out any actual or perceived conflict or competition between the two Saudi giants, which might have arisen with Aramco’s expansion into the petrochemicals sector.
Cyril Widdershoven, geopolitical and oil & gas analyst, founder and director of Verocy (Netherlands)
The main rationale [behind the acquisition] is to lock in future demand for Aramco’s crude oil demand. A combination of the two Saudi giants will not only increase the market share in downstream, but also will combine the leading strength in technology of Aramco and its innovative capabilities, with one of the world’s leading petrochemical companies.
SABIC’s access to Europe is also of importance, as the company has a large base in Europe, SABIC Europe in the Netherlands, which can be used as a direct support for the ongoing market share consolidation in Europe.
If [Aramco acquires] a substantial stake in SABIC, a new consolidation will emerge in the Saudi petrochemical sector. There will be a need to look at the existing Aramco and SABIC JVs in place, as these will maybe be hit by reassessments or changes in the future. It is according to me a logical strategy, to combine the strength and market share of both and build up a real power base as an INOC.
Samir Madani, co-founder, TankerTrackers.com (Sweden)
Aramco wants to get out of its shell as just a domestic oil producer. They want to show that they can be a diversified international energy and refined products conglomerate. The margins in refined products will protect them from price drops in crude oil, especially given that their original $2 trillion valuation was based on a $8/barrel multiplied by number of barrels in national reserve.
Write to Jerusha Sequeira at jerusha.s@argaamnews.com
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