Saudi Pressures Aramco to Take On Debt After IPO Stalls

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Saudi Arabia is pushing Aramco to raise tens of billions of dollars in debt now that the state oil giant’s initial public offering has stalled, as the kingdom pursues other ways to fund an economic transformation.
Crown Prince Mohammed bin Salman’s advisers are prodding Saudi Arabian Oil Co., as the oil company is officially known, to raise debt to buy a controlling stake in a petrochemical company from the country’s sovereign-wealth fund, said Saudi officials and executives familiar with the talks.
A potential deal would give the Public Investment Fund between $50 billion and $70 billion for all or part of its stake in Saudi Basic Industries Co., officials and executives said. Controlled by the state, Sabic is the country’s largest publicly listed company, with a market capitalization of about $100 billion.
That sum is roughly what the sovereign-wealth fund had expected to reap from Aramco’s plan to go public. Preparations for an IPO have stalled amid doubts about the company’s and country’s readiness to handle the scrutiny that accompanies a public listing of shares.

Aramco has already begun seeking billions of dollars in loans from international banks to finance the Sabic deal, according to people familiar with the matter.

Even though oil prices recently have risen, the government is running a budget deficit this year after announcing the biggest fiscal stimulus package in the country’s history.

Saudi Arabia turned to the international debt markets for the first time two years ago and has since raised at least $40 billion in sovereign debt to fuel spending. It is expected to raise more debt this year, increasing its ratio of debt to gross domestic product to 19%. Saudi Arabia has set itself a limit of 30% to clear its fiscal deficit by 2023.

Neither Aramco nor Sabic are enthusiastic about the deal, said the officials and executives, but the companies have acquiesced under pressure from the prince’s advisers.

Saudi Aramco Chairman Khalid al-Falih has long been opposed to a deal for Sabic, Saudi officials said. Sabic executives worry that the company would lose its identity in any deal, a person familiar with their thinking said.

A spokesman for PIF declined to comment on the potential deal. Spokespeople for Aramco and Sabic didn’t respond to requests for comment.

Prince Mohammed’s advisers see a deal between the kingdom’s two largest companies as central to remaking the economy now that the IPO of Aramco is on hold, said the officials and executives.

The Public Investment Fund needs cash to fund ambitious plans, including building several cities and investing in non-oil sectors like mining and tech.

Source – The Wall Street Journal


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