Aramco is considering a bond issue to finance a reported 70-percent stake acquisition in petrochemical giant Sabic from the Saudi sovereign investment fund, Bloomberg reports, citing sources in the know.
The bond, the sources said, could turn out to be an alternative to the much-hyped Aramco IPO that has already been delayed several times. The news of the Sabic acquisition led to suggestions that another delay was in order.
The Wall Street Journal also reports, citing Saudi government sources, that Aramco is being pushed into tapping international bond markets for the Sabic acquisition that could cost between US$50 and US$70 billion. What's more, the WSJ reports, Aramco has already approached banks for loans to buy the Sabic stake.
The money from the acquisition will flow into the Public Investment Fund, which is responsible for the distribution of funds that will go into all the ambitious Saudi projects aimed at steering the economy away from just oil and into new directions. Given that both Aramco and Sabic are state-owned companies, the transaction will effectively mean taking the money from one pocket and transferring it to the other.
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There is one problem with bond financing, though: Aramco would have to disclose its financial position, which is currently as much of a mystery as the size of China's strategic petroleum reserve. According to some, the company's unwillingness to disclose financial information was among the reasons for the delays of the initial public offering. But lenders would want to know this information before they part with their money, which puts Aramco in a difficult position.
On the plus side, as Bloomberg notes, a bond issue won't put a price tag on the whole company, which would be convenient after various valuations ahead of the IPO put a question mark over Crown Prince Mohammed's insistence that Aramco is worth up to US$2.5 trillion.
The WSJ's sources note that neither Aramco nor Sabic are too thrilled with the idea of a tie-up. Still, they don't really have a say, it seems: prince Mohammed's diversification plans need cash and a bond issue is one relatively safe way to get it if the underwriters convince the lenders they can trust Aramco.
By Irina Slav for Oilprice.com
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