RIYADH/DUBAI – Saudi Aramco has completed its purchase of a 70% stake in petrochemicals company Saudi Basic Industries (SABIC) for $69.1 billion and extended the payment period by three years to 2028, providing a cushion against weak oil prices.
The deal values SABIC at 123.39 riyals per share, 27% above the company’s share price of 89.90 riyals, as the coronavirus outbreak has hurt demand for petrochemicals products and lowered SABIC’s share price.
“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 CEO Amin Nasser said in a statement.
SABIC is the world’s fourth-biggest petrochemicals company.
Aramco and PIF amended the payment structure for deal, Aramco said in a bourse filing on Wednesday.
Following a seller loan provided by the Saudi state Public Investment Fund (PIF), Aramco will pay instalments and loan charges until 2028, extending a previously agreed 2025 deadline.
The first $7 billion payment is due on or before Aug. 2, 2020, with the last instalment, a loan charge of $1 billion, on or before April 7, 2028.
The transaction was funded through promissory notes issued to PIF at the deal’s close, Aramco said.
Under a previous agreement, 36% of the purchase price – roughly $25 billion – would have been paid in cash at the closing date.
“The entire Aramco-SABIC deal is about managing cash flow, duplicated costs and access to debt markets within the same group,” Hasnain Malik, head of equity strategy at Tellimer, said.
“Minority investors in Aramco enjoy some protection in the short-term through their guaranteed dividend stream, but whether the current share price reflects long-term risk to oil price and that dividend stream is a separate question.”
The deal will inject billions of dollars into the PIF, giving it scope to proceed with its plans to diversify the largest Arab economy beyond oil exports, including tourism projects and a mega business zone.