Sabic deal raises further questions over Aramco IPO

23 August 2018
Acquisition of the world’s fourth-largest chemicals company would further delay planned share sale in Saudi Aramco

The potential acquisition of a stake in petrochemicals company Saudi Basic Industries Corporation (Sabic) by Saudi Aramco has cast further doubts over the planned part-listing of the world’s largest oil company.

The acquisition of a majority stake in Sabic would further expand Aramco’s downstream portfolio, creating an entity that could compete with international integrated energy companies such as ExxonMobil and Shell in the downstream and specialised chemical products sector. With talks over an acquisition at a very early stage, it is unclear how Aramco would fund the deal. According to sources close to the discussions, the oil major is considering tapping the international bond market for the first time.

While such a large transaction, which is estimated could be up to $70bn, would normally create waves of excitement throughout international financial markets, the deal is tinged with disquiet over potential ramifications for the planned part initial public offering (IPO) of Saudi Aramco.

Aramco CEO Amin Nasser has conceded that, if completed, the Sabic deal would have an impact on the timeline for the oil major’s partial IPO, which has already been pushed back by a year. The Sabic discussions come just a month after Nasser had admitted that the kingdom had yet to make a decision on the final structure of the part-listing.

Concerns over the execution of the partial Aramco IPO, which forms the centrepiece of Crown Prince Mohammed bin Salman’s Vision 2030 economic programme, have risen steadily since the date for the transaction was pushed back from its original 2018 target.

Slow decision-making, growing worries over legal exposure and concerns that the $2tn Aramco valuation sought by the crown prince is unobtainable have led many senior financiers to speculate on the future of the listing. In tandem with delays over preparations for the listing, other options such as a private sale to Chinese and Russian investors have emerged as possible alternatives to a public offering.

While the Sabic acquisition would diversify Aramco’s portfolio and boost the coffers of the kingdom’s sovereign wealth fund, the distraction of such a major deal will further delay the planned stock listing and raise further doubts on whether what was previously heralded as the “world’s largest IPO” will happen at all.

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