Saudi Aramco has completed its purchase of a 70% stake in petrochemicals company Saudi Basic Industries Corp. (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 (US$32.90) per share, 27.5% above the company's share price of 89.40 riyals, as the coronavirus outbreak has hurt demand for petrochemicals products and dented SABIC's shares.
"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 the Saudi state Public Investment Fund (PIF) amended the payment structure for deal, Aramco said in a bourse filing on June 17.
Following a seller loan provided by the PIF, Aramco will pay installments and loan charges until 2028, extending a previous 2025 deadline.
The first $7 billion payment is due on or before Aug. 2, with the last installment, a loan charge of $1 billion, on or before April 7, 2028.
The transaction was funded through promissory notes issued to the PIF at the deal's close on June 16, Aramco said.
Under a previous agreement, 36% of the purchase price—roughly $25 billion—would have been paid in cash on completion.
A source familiar with the deal, asking not to be named, said the extended payment schedule aimed to enable Aramco to pay dividends to the government.
Some analysts have voiced concerns the oil slump would make it difficult for Aramco to pay the government this year, although its first-quarter dividend was in line with a plan for a $75 billion 2020 payout.
"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.
He said a guaranteed dividend stream would give short-term protection to Aramco and some minority shareholders, but raised the question of whether the share price reflected long-term risk to the oil price.
The deal will inject billions of dollars into the PIF that can finance plans to diversify the largest Arab economy beyond oil exports, including tourism projects and a mega business zone.
Royal Bank of Canada said the new terms, reflecting the weaker macro environment, were clearly an improvement for the buyer, adding that was "not surprising given recent deal renegotiations in the energy space." (US$1 = 3.7507 riyals)
Recommended Reading
Baytex Completes Sale of Kerrobert Thermal Asset for $42MM
2024-12-23 - Baytex Energy’s divested Kerrobert non-core thermal asset can produce approximately 2,000 bbl/d of heavy oil.
Tracking Frac Equipment Conditions to Prevent Failures
2024-12-23 - A novel direct drive system and remote pump monitoring capability boosts efficiencies from inside and out.
Baker Hughes: US Drillers Keep Oil, NatGas Rigs Unchanged for Second Week
2024-12-20 - U.S. energy firms this week kept the number of oil and natural gas rigs unchanged for the second week in a row.
ProPetro Agrees to Provide Electric Fracking Services to Permian Operator
2024-12-19 - ProPetro Holding Corp. now has four electric fleets on contract.
EY: Three Themes That Will Drive Transformational M&A in 2025
2024-12-19 - Prices, consolidation and financial firepower will push deals forward, says EY.