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After having shelved indefinitely plans to go public, Saudi Aramco is looking to buy a majority stake in Saudi chemicals giant Sabic from the government’s sovereign wealth fund, and may borrow US$50 billion from international banks to finance that deal, Reuters reported on Monday, citing banking sources familiar with the talks.
Saudi Aramco—whose initial public offering (IPO) is now all but scrapped—plans to buy the 70 percent in Sabic currently in the hands of the Public Investment Fund (PIF) of Saudi Arabia in a deal expected to be worth US$70 billion.
Aramco’s acquisition of a majority stake in Sabic would be key to the oil giant’s strategy to expand in the downstream segment and curb emissions, Aramco’s chief executive Amin Nasser told the Financial Times last month, noting that talks about the Sabic acquisition were still at an early stage.
According to Reuters’ banking sources, bankers have been meeting with Aramco over the past few weeks to talk about ways to raise money for the Sabic deal, with various options discussed, including bond issues and bank loans.
Currently, the most likely scenario would be Aramco tapping its own cash for around $20 billion of the US$70-billion acquisition price tag, while the remaining $50 billion would come from a combination of various large long-term loans and smaller short-term bridge loans. The shorter-term loans could be replaced with bond issues after a year-a year and a half, several sources told Reuters.
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For the loans with the banks, Aramco could look to price its debt at the same level as Saudi Arabia’s debt, which could mean slim profits for the banks extending the loans. Yet, the opportunity to later work with Aramco on other finance deals would be incentive enough for the major international banks to join the loans, according to Reuters.
Bond issues, however, could be more complex and tricky for Aramco—a bond issue on the international market would mean the Saudi oil giant disclosing financial information in a bond prospectus and obtaining a credit rating, which the Saudis may not be too much willing to do. After all, the necessary disclosures of financial and oil reserves information was reportedly one of the reasons why Aramco’s IPO was placed on hold.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.