Saudi Aramco completes its purchase of a 70% stake in SABIC for £55.10 billion

on Jun 17, 2020
Updated: Feb 25, 2022
  • Saudi Aramco completes its purchase of a 70% stake in SABIC for £55.10 billion.
  • The agreement values Saudi Basic Industries (SABIC) at £26.23 per share.
  • Saudi Aramco announces a 3-year extension on the payment period to 2028.

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Saudi Aramco said on Wednesday that it has completed its deal with Saudi Basic Industries. Aramco now has a 70% stake in the Riyadh-based petrochemicals company that it purchased for £55.10 billion. Aramco also announced a 3-year extension on the payment period to 2028, aimed at providing support against weak oil prices.

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Shares of Aramco ended almost flat on Wednesday. At £6.94 per share, the Saudi Arabian multinational petroleum and natural gas company is roughly 2% up year to date in the stock market after recovering from a low of £5.37 per share in March. Learn more about why prices rise and fall in the stock market.

Agreement values Saudi Basic Industries at £26.23 per share

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The agreement values SABIC at £26.23 per share that represents a 27.5% increase on the company’s current per-share price of £18.92. Saudi Basic Industries took a significant hit in recent months as the Coronavirus pandemic weighed on demand for petrochemical products. At the time of writing, SABIC is the world’s 4th largest petrochemicals firm. Saudi Aramco recently donated £398,000 to Indian Red Cross Society for COVID-19 relief.

In its Wednesday’s filing, Aramco said that it worked with the Public Investment Fund (PIF) of Saudi Arabia to adjust the payment structure of the agreement. PIF will provide a seller loan, following which, Aramco will make payments until 2028 for instalments and loan charges.

The first payment valued at £5.58 billion is scheduled for 2nd August 2020. The last instalment (£800 million loan charge), Aramco highlighted, will be paid on 7th April 2028. The extended payment schedule is also expected to help Aramco make dividend payments to the government.

Aramco’s Q1 dividend matches the expectations

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In recent weeks, analysts have raised concerns about Aramco’s ability to pay the government in 2020. Its dividend in the first quarter, however, matched the expectations of £59.80 billion payout this year. Head of equity strategy Hasnain Malik of Tellimer commented on the news on Wednesday and remarked:

“The entire Aramco-SABIC deal is about managing cash flow, duplicated costs and access to debt markets within the same group.”

PIF will get billions of dollars worth of boost as a result of this deal that will help the sovereign fund expand the largest Arab economy. The diversification will include increasing investments in mega business zones and tourism projects to minimise Saudi Arab’s reliance on oil exports.

At the time of writing, Aramco is valued at £1.39 trillion and has a price to earnings ratio of 20.99.

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