Following the massive global oil price drop, oil and gas giant Saudi Aramco is reportedly reviewing its previous plan of purchasing a controlling stake in petrochemical firm Saudi Basic Industries Corp (SABIC). The restructuring of the deal also comes after a dramatic 40 percent drop in SABIC's market value caused by the oil demand drop and the coronavirus pandemic.
In its original proposal, Saudi Aramco planned to purchase a 70 percent stake in the petrochemical company from the kingdom's wealth fund, the Public Investment Fund (PIF). The deal was estimated to be worth around $69.1 billion and would have been one of the largest deals ever made in the global chemical industry.
Saudi Aramco had priced SABIC's shares at 123.39 riyals or around $32.86 during negotiations back in March of last year. Since then, SABIC's share prices have dropped to around 70 riyals; a direct result of the oil price crash and the economic effects of the coronavirus pandemic. During its first quarter, SABIC also reported its second straight quarterly loss, further souring the deal.
If Saudi Aramco were to push ahead with the deal based on SABIC's current market value, it would only have to pay around $40 billion for the 70 percent controlling stake. PIF head and Saudi Aramco chairman, Yasir al-Rumayyan, is reportedly heading the new negotiations for the deal. According to sources with knowledge of the matter, Saudi Aramco is now actively reviewing the purchase price with the aim of reducing the burden on its finances.
Reports had revealed that the PIF was still willing to extend its $10 billion bridge loan in collaboration with 10 separate banks to fund Saudi Aramco's acquisition of a controlling stake in SABIC. Both Saudi Aramco and the PIF have yet to confirm any of the reports. SABIC had commented that the matter is between the PIF and Saudi Aramco and it is just waiting for a decision to be made.
SABIC CEO Yousef al-Benyan mentioned during a news briefing last week that the deal is still on the table and the company is still committed to completing the transaction. He added that the plan to complete the stake acquisition by the second quarter was still a go and that no changes to the timeline have been made.
The deal, if it pushes through, is expected to inject billions of dollars into the PIF, which it can use to invest in other businesses in line with the nation's goal of diversifying its economy beyond oil and gas.
