Saudi Aramco’s acquisition of SABIC stake paves way for IPO

Saudi Aramco’s acquisition of SABIC stake paves way for IPO

Saudi Aramco’s planned initial public offering (IPO) is set to be the biggest in history — and so requires some equally historic moves in preparing for the share sale.

The energy giant’s agreement to buy a 70 percent stake in Saudi petrochemicals company SABIC for $69 billion — said to be the biggest-ever deal in the Middle East — is one of the key milestones in the road to IPO.

The deal will act to bolster Aramco’s balance sheet while also diversifying its business — with both factors helping pave the way for a prospective share sale. It made perfect sense that the Aramco IPO was delayed until 2021, partly to allow time for the SABIC deal to go through.

The purchase follows an independent audit into Saudi Arabia’s hydrocarbon reserves, the results of which were published in January, and which revealed that the Kingdom’s proven reserves stood at around 268.5 billion barrels of oil and 325.1 trillion standard cubic feet of gas as of the end of 2017. That, too, can be seen as a precursor to a possible IPO of Aramco, as it provided much-needed clarity to would-be investors.

Saudi Aramco's agreement to buy a stake in SABIC is one of the key milestones in the road to IPO and will act to bolster Aramco's balance sheet while diversifying its business.

Faisal Mrza

It is believed that the SABIC stake acquisition agreement — which has been confirmed much earlier than expected — will be financed, at least in part, by a bond sale.

As part of such a sale, Saudi Aramco would need to reveal some of its financial details — another stepping stone to an IPO, which would require similar disclosures.

Saudi Aramco wants to move away from being just an exporter of crude, to using its oil to create petrochemicals and fuel for export. That would see it becoming an integrated energy company, and owning a major stake in SABIC would give Aramco a quick boost toward that goal.

Increasing Aramco’s refining and petrochemicals capacities will greatly improve its non-oil revenues, something essential for its diversified and sustainable economic future. Potential shareholders will, doubtless, take note.

  • Faisal Mrza is an energy and oil market adviser. He was formerly with OPEC and Saudi Aramco. Reach him on Twitter: @faisalmrza
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