Oil giant Saudi Aramco completes $70b takeover of Sabic

Dubai: Saudi Aramco has completed a deal it reached last year to buy a 70% stake in Saudi Basic Industries Corp. for around $70 billion, roughly equal to the chemical maker's entire value now.

Aramco will pay Saudi Arabia's sovereign wealth fund in several installments between August this year and April 2028, the company said in a statement to the stock exchange in Riyadh. The first payment of $7 billion will be made on Aug. 2, Aramco said. The sovereign fund, known as the Public Investment Fund, will provide Aramco with a loan for the acquisition.

The deal effectively transfers cash from one arm of the Saudi state to another. It enables Aramco to accelerate its push to turn oil into products such as plastics, while giving the PIF more cash to pay for its burgeoning list of spending commitments both inside the country and abroad.

Aramco, the world's biggest oil exporter, agreed in March last year to pay 123.4 riyals a share for the PIF's stake in Sabic, the equivalent of $69.1 billion. The rest of the chemicals maker will remain listed on the Saudi stock exchange, where a small sliver of Aramco stock also trades. That will prevent Aramco from being able to fully integrate Sabic.

Shares drop

Since the the deal was announced, Sabic's stock has dropped to less than 90 riyals. The transaction serves as a way for the PIF to get a significant cash injection, since the proceeds it was counting on receiving from Aramco's initial public offering fell short of expectations.

Crown Prince Mohammed Bin Salman had expected the share sale to value Aramco at $2 trillion and perhaps raise as much as $100 billion from global investors. After international investors balked at the Prince's numbers, Aramco settled on a smaller domestic offering, which raised about $30 billion, still making it the largest IPO ever.

The sovereign wealth fund, under the leadership of Yasir Al-Rumayyan, who's also Aramco's chairman, is shifting its investment focus. Five years ago it was a holding company for government stakes in the likes of Sabic and National Commercial Bank. After an aggressive period of dealmaking, the fund now holds stakes in Citigroup, Facebook, Uber and is one of the major investors in SoftBank's Vision Fund.

The PIF lies at the heart of Saudi Arabia's economic transformation plan known as Vision 2030, which aims to reduce its reliance on oil. The fund is meant to be an anchor investor in domestic projects like the $500 billion futuristic city of Neom, which Prince Mohammed wants to develop on the kingdom's northwestern coast.