Saudi Aramco close to becoming majority stakeholder in South Korea’s S-Oil

The purchase will increase AOC’s ownership of S-Oil to 63.4 per cent from 34.99 per cent, AOC said in a statement.

S-Oil has a refining capacity of 669,000 barrel per day. Above, the company’s facilities in Ulsan, South Korea. SeongJoon Cho / Bloomberg News

Saudi Aramco, the world’s largest oil producer, is close to finalising a US$1.95 billion deal to become a majority stakeholder in the South Korean refinery firm S-Oil.

Aramco Overseas, which is owned by Aramco, said yesterday that it had agreed in principle to buy the South Korean firm Hanjin Group’s 28.4 per cent stake in S-Oil, which will give Aramco a 63.4 per cent share in the company.

As part of the deal,Aramco will buy 32 million shares in S-Oil from Hanjin Energy, a member of the Hanjin Group.

“This transaction underscores Saudi Aramco’s confidence in the Korean economy and its strategy to enhance its presence in the growing Asian markets and AOC’s commitment to S-Oil growth,” said Khalid Al Falih, the chief executive of Aramco.

S-Oil recorded first-quarter profit of 25 billion won earlier this year.

The company is headquartered in Seoul, and 60 per cent of its production is targeted at the overseas market, according to Pipeline, an industry website.

S-Oil’s shares, listed on the Korea Stock Exchange, fell 0.88 per cent in trading yesterday.

The transaction is contingent on regulatory approvals, the company said in a statement.

The deal is expected to be completed by the end of August.

Aramco said it aimed to invest $100bn over the next 10 years in downstream industry areas, which include the distribution, marketing, and refining of oil products.

Aramco manages conventional crude oil reserves of 260.2 billion barrels and gas reserves of 288.4 trillion standard cubic feet, according to its annual statement. The company is responsible for around one-eighth of global oil production.

Aramco earns more than $1bn in revenue per day, according to Forbes, making it one of the world's largest companies, and the second largest private company in the world, after China National Petroleum Corporation. It is the world's sixth largest refining firm, and has refining capacity of 4.9 million barrels per day.

S-Oil has a refining capacity of 669,000 bpd.

The Hanjin Group has sought to sell off assets in an attempt to improve its financial health.

“The decision was made as part of the group’s capital-raising efforts to address its deteriorating financial health,” the Hanjin Group said in a statement.

Korea’s Financial Supervisory Service formally requested that the Hanjin Group sell assets to reduce its debt pile in November last year.

The Hanjin Shipping Company, which it owns, said that it would raise 2 trillion won by selling maritime assets including vessels and port terminals.

The equity fund Hahn & Co purchased 36 vessels from Hanjin Shipping last year, in a deal valued at 300bn won, according to Bloomberg News.

Korean Air Lines, which is also part of the group, said it aimed to sell off assets, including 13 aircraft.

Aramco did not reply to a request for comment.

Brent crude was yesterday trading at $111 per barrel, as heightened instability in Iraq put the safety of oil supplies in doubt.

* with Reuters