The long-awaited acquisition of Saudi Aramco by Saudi Basic Industries Corporation (SABIC) is finally here. value of 69.1 billion dollars. Chief Executive Officer of Aramco Nasser reiterated that "the deal is an important step in accelerating Saudi Aramco's growth strategy in the field of transformation."
Aramco acquired the shares of the Saudi Fund for Public Investment (PIF) at a price per share of 123.39 riyals, a slight discount on SABIC's closing price on Wednesday. Analysts are positive about the closing price, based on the fact that the acquisition is seen as a strategic, long-term investment, especially given that SABIC is one of the most defensive, non-cyclical segments. to be criticized, as Aramco is looking for a much larger discount when negotiating with PIF. Nasser also said that Aramco and SABIC together will create a stronger and stronger business to meet the growing demand for energy and chemical products globally.
PIF Executive Director Yassir Otman Al Rummaian said the deal was a profitable deal while looking at the positive effects for Aramco, SABIC and PIF. For PIF, the goal is to generate additional cash for SWFs to invest and generate higher yields than it could at the time. PIF, as the main investment fund of Saudi Prince Mohammed bin Salman, is to finance and support the continued economic diversification and liberalization of the Saudi economy as outlined in Saudi Vision 2030 and NIDLP
. is a true winner, looking at the positive effects of the merger of the largest oil company in the world and the world's largest petrochemical company. With the acquisition, Aramco will be able to achieve its goal of increasing its current refining capacity from 4.9 million barrels per day to 8-1
There is still a long list of questions that need to be asked and answered. The first will be how to integrate SABIC Saudi and international business operations into Aramco, still largely a Saudi and managed company. Undoubtedly, Saudi Aramco's management and technical standards and operations are of the highest class, some of which are even better than most IOCs. The management changes currently underway within Aramco have supported the company to become a major player in and outside of the kingdom. The situation in SABIC is different. The petrochemical giant faces rising international pressure, but still enjoys a strong position in the Saudi markets and benefits from its active acquisition in the 1990s and 2000s. SABIC's European and US-based operations are growing rapidly, with its European subsidiary being a market leader. Within the kingdom, UAB's historical position to be a leader, however, is under pressure, and some even say that without Saudi support, the company would face major difficulties. Management issues are also challenging and could lead to conflicts or merger problems with their new parent. Based on internal knowledge, Aramco will have to deal with a much more conservatively managed and managed new child in the family.
The second question that is currently being asked is how the Aramco deal will be funded. If we look at Aramco's current cash flow, the oil giant will have no real problem financing the deal, potentially taking some of the money needed from international financial markets. However, the deal is more likely to lead to a spread distribution agreement in which Aramco will be able to pay for a prolonged period of time. This would also mean that the long-awaited deal, which is largely designed to generate additional cash inflows for PIF, is not as profitable or effective as the media expect. With a long payout period, PIF's cash inflow will not be $ 69.1 billion at a time, but is spread over years. This could mean that SWFs still have to find additional sources of funding for the acquisition of their national and international projects.
The main analysis again deals with the fact that the deal is being made to fund Saudi Vision 2030 of Crown Prince MBS. this is the case at present. The only chance to speed up the MBS dream much faster is to fund the Aramco-SABIC transaction through international debt. Even with several large bond issues, MBS will not generate $ 70 billion at a time. The management of Aramco is also too conservative or prudent in its investments to take this route without caution. With the entry of international capital markets, Aramco will be forced to open its books and provide detailed financial statements to potential financial institutions. Another possible, unresolved issue is the fact that, with the acquisition of SABIC, Aramco has become a fully integrated international oil company. By taking over SABIC operations around the world, Aramco not only increases its exposure globally, but also to possible geopolitical problems or legal threats, such as NOPEC or the JASTA Law Against Terrorism Sponsors. Being a major downstream giant, Aramco entered the premises of IOC, traders and manufacturers of chemicals around the world. Competition will be fierce, requiring major changes within SABIC operations across the globe and adapting Aramco's focus to the focus with bangs and crashes. As stated by Aramco, it has appointed banks such as JPMorgan Chase & Co., Morgan Stanley, Citigroup Inc., HSBC Holdings Plc and the National Commercial Bank to manage potential bond sales.
Finding enough appetite in the market for Sale of Saudi bonds is still a problem. Geopolitical risks and concerns about the internal stability of the Saudi royal family may reduce the appetite of large financial institutions. The kingdom may be listed on several emerging market indexes (FTSE / MSCI), but the investment appetite is limited by the impact of the Khashoggi murder, the increased volatility in the oil markets and the pressure on the position of the successor prince.
Some analysts expect the merger of Aramco-SABIC to be a major step forward in Aramco's IPO. Given the need for financial reporting and opening of Aramco's books, a full-scale IPO, including SABIC operations and assets, can now be considered.
By Cyril Widdershoven for Oilprice.com