Saudi Aramco acquiring SABIC a fair deal, analysts say

Saudi Aramco’s strategic move to acquire a 70 percent majority stake in Saudi Basic Industries Corp (SABIC) from the Public Investment Fund (PIF), the Kingdom’s sovereign wealth fund, for SAR 259.125 billion ($69.1 billion) is at a fair price and will drive the state-oil giant to become a top player in the downstream segment, analysts told Argaam.

“SABIC now is owned by the world’s biggest oil company and stands to gain from Aramco’s expertise. We believe the transaction is taking place at a fair price,” Muhammad Faisal Potrik, head of research, Riyad Capital, told Argaam.

“This transaction is great news for the Kingdom as it unlocks value and liquidity for PIF and positions Saudi Aramco as a major player in the downstream segment as well, ideally placing it for its upcoming IPO,” he added.

Read: Saudi Aramco acquires 70% majority stake in SABIC for $69 bln

Robin Mills, chief executive officer, Qamar Energy, said that the price being paid is close to the original market price and above what Saudi Aramco had wanted to pay.

“The acquisition removes some potential competition between Aramco and SABIC over leading the Kingdom’s petrochemicals diversification push; the two had some joint projects and also some overlap in their strategies.

"It greatly strengthens Aramco’s aim of being a leading petrochemicals player as a way of creating more value, adding sophistication and employment to the national economy, gaining access to growing Asian markets, and ensuring a future market for its oil,” Mills noted.

He believed that the next challenge will be how to integrate SABIC operationally and whether to divest any parts of its business.

“The share price at SAR 123.4 is fair given it is a strategic, long-term investment and given that SABIC is one of the ‘most defensive, uncyclical segments as its growth is mainly related to population growth’,” Mazen Al Sudairi, head of research at Al Rajhi Capital, told Reuters.

Yousef Husseini, an analyst at EFG-Hermes, added: “We think it’s a fair offer and makes sense from a pure valuation perspective.”

Nitin Garg, Manager, Research, SICO, told Argaam that the positive for SABIC from this deal is that it has got Saudi Aramco as a shareholder which control most of the feedstock allocation in the Kingdom.
 
“However the name is already trading at 25 percent premium to US based Dow-Dupont Chemicals on one year forward EPS estimates. It would also be interesting to see what Saudi Aramco does with its own chemical assets (35 percent stake in Petro Rabigh, 65 percent stake in Sadara, rubber manufacturer Laxness, planned ethylene crackers like Motiva). Will it inject these chemical assets into SABIC for a cash payout to make one chemical entity,” he added.

SICO maintained its “neutral” rating on the stock with a target price of SAR 125 a share.  

In a statement issued on Wednesday night, Saudi Aramco announced it had signed a deal with PIF to acquire its 70 percent stake in SABIC at SAR 123.39 per share, which is equivalent to SAR 259.125 billion.

The acquisition is in line with Aramco’s long-term strategy to drive growth through an enhanced downstream portfolio by increasing global participated refining capacity from 4.9 million to 8-10 million barrels per day (bpd) by 2030, out of which 2 to 3 million bpd will be converted into petrochemical products, the statement said.

Write to Parag Deulgaonkar at parag.d@argaamplus.com