Saudi Aramco to Buy SABIC in $69 Billion Chemicals Megadeal

The world’s largest oil producer Saudi Aramco has agreed to buy a 70 percent stake in Saudi Basic Industries Corp (SABIC) from the kingdom’s wealth fund for $69.1 billion in one of the biggest chemical industry deals ever. The agreement to help boost Aramco’s downstream growth plans comes after months of talks between Aramco and the Public Investment Fund (PIF), which contributed to the delay of Aramco’s planned multi-billion dollar initial public offering.

“This is a win-win-win transaction and a transformational deal for three of Saudi Arabia’s most important economic entities,” said Yasir al-Rumayyan, managing director of the PIF.

The deal could inject billions of dollars into the PIF, giving it the firepower to proceed with its plans to create jobs and diversify the largest Arab economy beyond oil exports, including a mega business zone in the northwest of the country. Aramco has been increasing its investments in refining and petrochemicals to secure new markets for its crude, as it sees growth in chemicals as central to its downstream expansion strategy.

SABIC and Aramco said in a statement the agreed purchase price was 123.39 riyals per share, a slight discount from SABIC’s closing price on Wednesday.

“Share price at 123.4 is fair given it is a strategic, long-term investment and given that SABIC is one of the most defensive, uncyclical segments as its growth is mainly related to population growth,” said Mazen al-Sudairi, head of research at Alrajhi Capital.

“We think it’s a fair offer and makes sense from a pure valuation perspective,” said Yousef Husseini, an analyst at EFG-Hermes.

Aramco’s Chief Executive Amin Nasser said the deal - which is subject to certain closing conditions, including regulatory approvals - represented an “historic moment” and a “great opportunity for growth,” Saudi-owned broadcaster Al Arabiya reported. He told Al Arabiya there were a number of options to finance the deal. “Cash, borrowing and bonds are all available to us,” he said. The Saudi economy was “the biggest winner,” Energy Minister Khalid al-Falih said in a tweet.

Aramco said it has no plans to buy the remaining shares in SABIC, the world’s fourth-biggest petrochemicals firm.

“Solidifying our relationship in this way strategically positions SABIC and Saudi Aramco to accelerate exciting developments in our global chemicals business,” said Yousef Al-Benyan, SABIC Vice Chairman and CEO.

Aramco plans to increase its refining capacity from 4.9 million to 8-10 million barrels per day by 2030. Saudi Aramco and SABIC have petrochemicals production capacity of 17 and 62 million tons per year, respectively.

“We think that Aramco will now run all of its future expansion plans directly through SABIC, and with a big part of the 2030 vision focused on expanding petchems, this only bolsters SABIC’s long-term growth potential,” Husseini said.

(Reporting by Marwa Rashad, Rania El Gamal, Hadeel Al Sayegh; Additional reporting by Saeed Azhar and Nayera Abdallah; Writing by Davide Barbuscia; Editing by Alexandra Hudson and David Evans)