Saudi Aramco is looking to restructure its deal to acquire a controlling stake in petrochemicals maker SABIC after a more than 40% drop in SABIC's value following a slump in oil prices in coronavirus pandemic, two sources told Reuters.
Aramco last year agreed to buy a 70% stake in Saudi Basic Industries Corp (SABIC) from the Public Investment Fund (PIF), the kingdom's wealth fund, for $69.1 billion, in one of the biggest deals in the global chemical industry.
The transaction was priced at 123.39 riyal ($32.86) per SABIC share, when the deal was announced in March 2019, but its shares are currently trading at around 70 riyals, as an oil price crash and the coronavirus pandemic pushed SABIC into a second straight quarterly loss in the first quarter.
SABIC’s total market value now is about $56.5 billion, which would make the value of Aramco's planned stake around $40 billion.
In theory, Aramco has to pay about $75 billion in dividends to the Saudi government after its initial public offering last year but analysts say its free cash flow is not expected to cover that amount.
Aramco's chairman and head of the PIF, Yasir al-Rumayyan, is leading the talks for Aramco and purchase price will be reviewed, according to one of the sources with direct knowledge of the matter.
Another source familiar with the deal said that Aramco wanted to reduce the burden on its balance sheet.
PIF is also looking to extend a $10 billion bridge loan signed with 10 banks in October and linked to the acquisition by Aramco of its stake in SABIC, one of the two sources and a separate source said.
The loan was aimed at providing PIF with short-term funding for new investments and would have been repaid after the sale of SABIC is completed, the PIF said last year.
A SABIC spokesperson said purchase of SABIC shares is a matter between the PIF and Saudi Aramco.
Aramco and the PIF did not immediately respond to a Reuters request for comment.
SABIC CEO Yousef al-Benyan told a virtual news briefing last week that Aramco has committed to complete the acquisition of a controlling stake in SABIC by the second quarter and he did not see anything that changes this timeline.
The deal could inject billions of dollars into the PIF, giving it the firepower to invest in deals abroad and infrastructure projects at home to create jobs and diversify the largest Arab economy beyond oil exports.
Aramco is also raising a $10 billion loan to back its acquisition of SABIC, sources have previously told Reuters.
($1 = 3.7550 riyals)