Saudi Aramco, the world’s biggest oil producing company, is expected to benefit from a boost to its value after its acquisition of a 70 per cent stake in petrochemicals company Sabic for $69 billion, S&P Global Ratings said.
Aramco bought the stake from the Public Investment Fund, the country’s sovereign wealth fund, as part of plans to grow its petrochemicals portfolio.
“We believe the deal will help add value to the crude oil it produces and expand its petrochemicals business, where demand is increasing faster than for crude oil,” said S&P on Sunday. “Moreover, we consider that the transaction reinforces Sabic's role in the Saudi Arabian government's efforts to diversify the economy.”
Aramco’s acquisition is in line with its long-term strategy to drive growth through an enhanced downstream portfolio by increasing global refining capacity from 4.9 million to 8 million-to-10 million barrels per day by 2030, of which 2 million to 3 million bpd will be converted into petrochemical products. This downstream portfolio will consume significant quantities of Saudi Arabian crude oil.
Aramco, which is being groomed for an initial public offering, delayed the 5 per cent stake sale slated for 2018 as it grows its petrochemical portfolio and assets, Saudi officials said last year.
The IPO is part of the kingdom’s reform agenda, which also includes wooing foreign investments and creating new revenue streams to wean itself off oil, all under the umbrella of Vision 2030.
PIF, which has about $300bn in assets under management, is involved in the economic diversification process and plans to boost its international investments to help raise assets to $2 trillion by 2030.
PIF is tasked with enabling the creation of new sectors and opportunities that will shape the future global economy, while driving the economic transformation of Saudi Arabia. Working alongside its global strategic partners and investment managers, PIF acts as the kingdom’s main investment arm to deliver a strategy focused on achieving attractive financial returns and long-term value for Saudi Arabia, in line with Vision 2030.
“The sale should also facilitate strategic investments by PIF, which is a core vehicle for the government's broader economic diversification plan,” said S&P.