Aramco Plans $10 Billion Bond to Fund Sabic Stake

Saudi Aramco plans to issue a $10 billion bond as early as next week to help fund its acquisition of a majority stake in Saudi Arabia’s petrochemicals firm, said people familiar with the matter, shining a light on the financial performance of the world’s largest oil company for the first time, Wall Street Journal reported.

The money would be used for a down payment on its $69.1 billion purchase of 70% of Saudi Basic Industries Corp., with the remainder of the acquisition paid in installments over time, the people said.

An Aramco bond would mark a significant step for both the oil firm and the kingdom, which delayed an initial public listing of the energy giant in part because of the global scrutiny that a listing would bring. Aramco Chairman Khalid al-Falih has said the firm will release data on its financial health and oil and gas reserves as part of a bond prospectus.

Aramco will issue the bond to pay upfront for some of Sabic, as the petrochemicals company is known, and then pay the rest in installments, people familiar with the matter told the Journal.

Aramco and the Saudi sovereign-wealth fund, the Public Investment Fund, which is selling its 70% stake in Sabic to Aramco, haven’t disclosed the terms or time frame for payments.

Saudi Arabia’s Crown Prince Mohammed bin Salman has championed financial and economic transparency as part of his kingdom’s national reform program, known as Vision 2030. His treasury has begun publishing fiscal data regularly and established an office to issue tens of billions of dollars of sovereign debt—moves lauded by the global financial community.

At the same time, the 33-year-old Saudi royal has launched an opaque political crackdown, locking up businessmen, clerics and activists in a purge that has drawn international criticism, the Journal adds.

Aramco’s acquisition of a controlling stake in Sabic is expected to attract less public scrutiny than a stock offering, the New York Times informs.

The deal “gives the crown prince what he wanted,” said F. Gregory Gause III, professor of international affairs at the Bush School of Government and Public Service at Texas A&M University. “It is certainly more convenient than having to raise cash through an I.P.O. that would have required opening up all of the books of Aramco.”

The stake that Aramco is buying is held by the Public Investment Fund, which Prince Mohammed has designated as a vehicle for carrying out his modernization plans. The transaction will convert the fund’s holding into cash, allowing it to make other investments.

The share sale “will unlock significant capital” for the fund’s investment strategy for contributing to “sectoral and revenue diversification of Saudi Arabia,” the fund’s managing director, Yasir Al-Rumayyan, said in a statement.

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