Saudi Aramco Mulls Financing for SABIC Stake

Saudi Aramco has abandoned the idea of a major bond issue to finance its acquisition of the Saudi government’s 70% stake in compatriot petrochemicals and plastics producer SABIC, the Wall Street Journal (WSJ) reports.

Citing “people familiar with the matter,” the newspaper says the company, while currently doing due diligence, is weighing a range of options. A financial structure for the deal is said to be planned for sometime next year, with one possible scenario a combination of syndicated loans and bonds raised on SABIC’s balance sheet. Another could be to stagger payments over a period of time.

According to WSJ, structuring the deal like a leveraged buyout, allowing SABIC’s balance to take the strain, could have two advantages for Aramco. In the first scenario, it could significantly reduce the amount of financial disclosure required. In the second, the amount of preparatory work would be smaller, as SABIC already has a track record as a bond issuer.

Proceeds from the share sale are to be pumped into the Kingdom’s sovereign wealth fund, Public Investment Fund (PIF). The Fund, which holds about $133 billion of assets, is planning investments in private health care services and hospitals as it seeks to modernize Saudi Arabia’s domestic infrastructure, the paper’s sources said.

To this end, PIF may seek investment opportunities in existing healthcare companies or form partnerships with foreign companies wanting to set up in the desert kingdom.

Turning Saudi Arabia into a regional center for health care is among objectives already outlined in PIF’s 2020 strategy document, published in 2017.

The path forward could potentially foresee the establishment of "medical cities," complete with a local pharmaceutical and medical devices industry to reduce imports – similar to the plastics production and processing hubs already in place.

The Public Investment Fund may appoint an adviser in the near future to help identify investment opportunities, reports say. This, too, has a precedent. In September, the fund appointed former Dow Chemical CEO Andrew Liveris as a special adviser for investment, presumably in the petrochemicals sector. Liveris is a member of Saudi Aramco’s board of directors.