16/01/2020 Saudi Aramco: the company to watch | IHS Markit

T Chemicals

Saudi Aramco: the company to

watch

06 January 2020

IHS Markit Chemical Week's latest coverage of Saudi Aramco

unveils their latest competitive strategies. Get the clearest
possible view of your position in relation to Saudi Aramco with
IHS Markit Company Strategies and Performance.
Saudi Aramco, the world's most profitable company, is on a
mission to become a leading chemicals player, as well as a top
energy company, with funds to back those ambitions. The Saudi
government in December launched an IPO of Aramco on the
Tadawul (Riyadh) stock exchange, with shares trading as of 11
December. The government raised $25.6 billion from the issue of
3 billion shares, 1.5% of Aramco's capital, making it the world's
largest IPO, and valuing the entire company at $1.73 trillion. The
government says it intends shortly to exercise some or all of the
greenshoe option, which could increase the issue size by 15% to
3.45 billion shares, 1.725% of the company, making the IPO
worth $29.4 billion. The proceeds will be used by Saudi Arabia to
diversify its economy away from a near-total dependence on oil.
Apart from a few hedge funds, which saw the opportunity for a
quick profit, investors outside Saudi Arabia and the Arab Gulf 
region largely ignored the IPO. A survey of 31 major institutions
carried out by the brokerage firm, Sanford C. Bernstein, and
reported in Fortune magazine, showed they valued the company
at an average of only $1.26 trillion. Analysts outside the region
cite reports that wealthy Saudi families and individuals were
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16/01/2020 Saudi Aramco: the company to watch | IHS Markit

pressured into supporting the issue, and that the government

itself, through institutions including the Saudi Public Pension
Fund, also pumped a large amount of money into it.
Nevertheless, in the week following the launch of trading, the
Aramco share price rose, despite a small pullback, by almost
18% to value the entire company at $2.04 trillion, just exceeding
Crown Prince Mohammed bin Salman's long-hoped-for valuation
of $2 trillion.
Analysts say that if continued pressure from subdued oil prices
forces Riyadh to monetize more of its Aramco holding—via, for
instance, a share sale to the Chinese government or its proxies or
a second issue on an international stock exchange a er the
contractual 12-month lock-up period—it would be in the
country's interest to have the highest possible Aramco share
price as a base valuation. One or more bond issues linked to
Aramco are another option. The country is estimated to need a
Brent crude price of $80-84/barrel (bbl), compared with the
current price of $65.60/bbl, to balance its budget and halt a drain
on its foreign currency reserves.
Meanwhile, Aramco is due to complete, in the first half of 2020,
the acquisition of a 70% stake in Sabic for $69.1 billion, which,
a er adding its own chemical assets in Saudi Arabia and
overseas, will make it one of the top chemical players worldwide
in revenue and capacity terms. The deal to acquire control of
Sabic—the remaining 30% of Sabic shares will remain listed on
the Tadawul exchange—is expected to boost Aramco's
downstream business and make it more attractive to investors.
The two companies are already working on a joint oil-to-
chemicals (OTC) project at Yanbu, Saudi Arabia, which is
expected to produce 9 million metric tons/year (MMt/y) of
chemicals and base oils from 400,000 b/d of crude and come
onstream in 2025. It is one of several OTC projects that Aramco is
progressing. OTC technology is expected to revolutionize the
worldwide petrochemical industry.
Aramco's chemicals business will operate in more than 50
countries and is expected to have the largest net production
capacity for ethylene and be among the top four companies by
net production of polyethylene, ethylene glycol, and
polypropylene, according to IHS Markit.
It is still unclear what level of integration is expected between
Aramco and Sabic, and how the new grouping will be managed.

Yousef al-Benyan, CEO of Sabic, does not expect any change to
Sabic's strategy or growth. "Sabic will remain a listed firm and
will have its own governance," Benyan said recently.
Abdulrahman al-Fageeh, Sabic's executive vice

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16/01/2020 Saudi Aramco: the company to watch | IHS Markit

president/petrochemicals, told CW recently that there is a team

in place looking at possible synergies. The Saudi government
recently reduced the tax rate on Aramco's downstream business
from a 50-85% tiered range to the general Saudi corporate tax
rate of 20%, on condition that Aramco consolidates its
downstream business under a separate, wholly-owned
subsidiary by the end of 2024.
When it unveiled plans to buy a majority stake in Sabic, Aramco
said that it had another $100 billion to spend on downstream
acquisitions, mainly outside Saudi Arabia. The company signed a
letter of intent in August to acquire a 20% stake in Reliance
Industries' refining, petrochemicals, and fuel-marketing
operations in India for $15 billion. It is reportedly eyeing other
major acquisitions in India, notably of the Indian government's
majority stake in Bharat Petroleum.
Aramco is a partner in another major integrated refinery and
downstream project in India that was first announced in 2017.
Aramco and Abu Dhabi National Oil Co. (Adnoc) are expected to
hold a combined 50% stake, with the rest divided among Indian
Oil, Bharat Petroleum, and Hindustan Petroleum. Aramco and
Adnoc will supply crude oil to the proposed 1.2-million b/d
refinery.
This project was moved from its original site of Ratnagiri to
Roha, Raigad District, in Maharashtra State, India. Indian oil
minister Dharmendra Pradhan said in September that the
project would cost more than the originally envisioned $45
billion, and in November the cost was officially estimated at a
staggering $70 billion. The new estimates followed a review by a
joint economic group of UAE and Saudi officials.

In recent years, Aramco has also agreed on refining and petchem

deals in the US, China, Malaysia, and South Korea to secure
downstream outlets for its crude oil production.

In the US, it bought Shell out of the Motiva Enterprises refining

joint venture in 2017 and plans to build a cracker and
downstream plants at the Motiva Port Arthur, Texas, site.
Meanwhile, Motiva agreed this year to acquire Flint Hills
Resources' nearby cracker and related chemical assets.
In Malaysia, Aramco is an equal partner with Petronas in the
Rapid petrochemical complex in Johor State, which is now being
commissioned. It is also planning to build a petrochemical

complex in South Korea, where it is a majority shareholder in S-
Oil, a leading oil refiner. Aramco completed last September the
purchase of Shell's 50% stake in the Saudi Sasref refinery and
plans to expand the facility downstream into chemicals.

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