DUBAI (Reuters) – Saudi Aramco is seeking to restructure a purchase of a controlling stake in the Saudi Basic Industries Corporation (SABIC) after the latter’s value fell more than 40 percent after a collapse in oil prices and the Corona virus pandemic, two sources told Reuters.
Saudi Aramco logo – Image from Reuters archive.
Aramco agreed last year to buy 70 percent of SABIC from the Public Investment Fund for $ 69.1 billion in one of the largest deals in the global chemical industry.
The deal price was set at 123.39 riyals ($ 32.86) per SABIC share when it was announced in March 2019, but the stock is currently at about 70 riyals, as the collapse in oil prices and the Corona SABIC pandemic suffered losses for the second consecutive quarter in the first quarter of the year.
The market value of SABIC is currently about $ 56.5 billion, bringing the market value of the stake that Aramco intends to purchase $ 40 billion.
Theoretically, Aramco will pay about $ 75 billion in cash dividends to the Saudi government after its initial public offering last year, but analysts say this free cash flow is not expected to cover this.
And one of the sources said, with direct knowledge, that Aramco’s Chairman and General Investment Fund Governor Yasser Al-Ramyan is leading negotiations on Aramco and that the price will be reviewed.
Another source familiar with the deal said Aramco wanted to reduce the burden on its financial statements.
A public source and a separate source said the Public Investment Fund was seeking to extend a $ 10 billion bridging loan it signed with ten banks in October and was linked to Aramco’s acquisition of a stake in SABIC.
The fund had said last year that the loan was intended to provide short-term financing for the fund for new investments and would have been paid after the SABIC sale was completed.
A SABIC spokesman said the stock purchase deal was between the fund and Aramco.
Neither Aramco nor the Fund have yet responded to a Reuters request for comment.
In a hypothetical press conference last week, SABIC Chief Executive Youssef Al-Bunyan said Aramco is committed to completing the acquisition of a controlling stake in SABIC by the second quarter of the year and that he does not expect any change in the timeframe.
The deal pumps billions of dollars into the fund and provides an asset for investing in deals abroad and the infrastructure at home to create jobs and diversify the resources of the largest Arab economy, which depends on oil.
Sources have previously told Reuters that Aramco is raising a $ 10 billion loan to support the acquisition of SABIC.
Covered by David Barboshya and Marwa Rashad – Hala Kandil for the Arab Bulletin – Edited by Ahmed Elhamy