Saudi Aramco, the world's most profitable company, is on a
mission to become a leading chemicals player, as well as a top
energy company, with funds to back those ambitions. The Saudi
government in December launched an IPO of Aramco on the Tadawul
(Riyadh) stock exchange, with shares trading as of 11 December. The
government raised $25.6 billion from the issue of 3 billion shares,
1.5% of Aramco's capital, making it the world's largest IPO, and
valuing the entire company at $1.73 trillion. The government says
it intends shortly to exercise some or all of the greenshoe option,
which could increase the issue size by 15% to 3.45 billion shares,
1.725% of the company, making the IPO worth $29.4 billion. The
proceeds will be used by Saudi Arabia to diversify its economy away
from a near-total dependence on oil.
Apart from a few hedge funds, which saw the opportunity for a
quick profit, investors outside Saudi Arabia and the Arab Gulf
region largely ignored the IPO. A survey of 31 major institutions
carried out by the brokerage firm, Sanford C. Bernstein, and
reported in Fortune magazine, showed they valued the company at an
average of only $1.26 trillion. Analysts outside the region cite
reports that wealthy Saudi families and individuals were pressured
into supporting the issue, and that the government itself, through
institutions including the Saudi Public Pension Fund, also pumped a
large amount of money into it. Nevertheless, in the week following
the launch of trading, the Aramco share price rose, despite a small
pullback, by almost 18% to value the entire company at $2.04
trillion, just exceeding Crown Prince Mohammed bin Salman's
long-hoped-for valuation of $2 trillion.
Analysts say that if continued pressure from subdued oil prices
forces Riyadh to monetize more of its Aramco holding—via, for
instance, a share sale to the Chinese government or its proxies or
a second issue on an international stock exchange after the
contractual 12-month lock-up period—it would be in the
country's interest to have the highest possible Aramco share price
as a base valuation. One or more bond issues linked to Aramco are
another option. The country is estimated to need a Brent crude
price of $80-84/barrel (bbl), compared with the current price of
$65.60/bbl, to balance its budget and halt a drain on its foreign
Meanwhile, Aramco is due to complete, in the first half of 2020,
the acquisition of a 70% stake in Sabic for $69.1 billion, which,
after adding its own chemical assets in Saudi Arabia and overseas,
will make it one of the top chemical players worldwide in revenue
and capacity terms. The deal to acquire control of Sabic—the
remaining 30% of Sabic shares will remain listed on the Tadawul
exchange—is expected to boost Aramco's downstream business and
make it more attractive to investors. The two companies are already
working on a joint oil-to-chemicals (OTC) project at Yanbu, Saudi
Arabia, which is expected to produce 9 million metric tons/year
(MMt/y) of chemicals and base oils from 400,000 b/d of crude and
come onstream in 2025. It is one of several OTC projects that
Aramco is progressing. OTC technology is expected to revolutionize
the worldwide petrochemical industry.
Aramco's chemicals business will operate in more than 50
countries and is expected to have the largest net production
capacity for ethylene and be among the top four companies by net
production of polyethylene, ethylene glycol, and polypropylene,
according to IHS Markit.
It is still unclear what level of integration is expected
between Aramco and Sabic, and how the new grouping will be managed.
Yousef al-Benyan, CEO of Sabic, does not expect any change to
Sabic's strategy or growth. "Sabic will remain a listed firm and
will have its own governance," Benyan said recently. Abdulrahman
al-Fageeh, Sabic's executive vice president/petrochemicals, told CW
recently that there is a team in place looking at possible
synergies. The Saudi government recently reduced the tax rate on
Aramco's downstream business from a 50-85% tiered range to the
general Saudi corporate tax rate of 20%, on condition that Aramco
consolidates its downstream business under a separate, wholly-owned
subsidiary by the end of 2024.
When it unveiled plans to buy a majority stake in Sabic, Aramco
said that it had another $100 billion to spend on downstream
acquisitions, mainly outside Saudi Arabia. The company signed a
letter of intent in August to acquire a 20% stake in Reliance
Industries' refining, petrochemicals, and fuel-marketing operations
in India for $15 billion. It is reportedly eyeing other major
acquisitions in India, notably of the Indian government's majority
stake in Bharat Petroleum.
Aramco is a partner in another major integrated refinery and
downstream project in India that was first announced in 2017.
Aramco and Abu Dhabi National Oil Co. (Adnoc) are expected to hold
a combined 50% stake, with the rest divided among Indian Oil,
Bharat Petroleum, and Hindustan Petroleum. Aramco and Adnoc will
supply crude oil to the proposed 1.2-million b/d refinery.
This project was moved from its original site of Ratnagiri to
Roha, Raigad District, in Maharashtra State, India. Indian oil
minister Dharmendra Pradhan said in September that the project
would cost more than the originally envisioned $45 billion, and in
November the cost was officially estimated at a staggering $70
billion. The new estimates followed a review by a joint economic
group of UAE and Saudi officials.
In recent years, Aramco has also agreed on refining and petchem
deals in the US, China, Malaysia, and South Korea to secure
downstream outlets for its crude oil production.
In the US, it bought Shell out of the Motiva Enterprises
refining joint venture in 2017 and plans to build a cracker and
downstream plants at the Motiva Port Arthur, Texas, site.
Meanwhile, Motiva agreed this year to acquire Flint Hills
Resources' nearby cracker and related chemical assets.
In Malaysia, Aramco is an equal partner with Petronas in the
Rapid petrochemical complex in Johor State, which is now being
commissioned. It is also planning to build a petrochemical complex
in South Korea, where it is a majority shareholder in S-Oil, a
leading oil refiner. Aramco completed last September the purchase
of Shell's 50% stake in the Saudi Sasref refinery and plans to
expand the facility downstream into chemicals.