The Market, Energy, Political Page, T+57, Part 2 -- July 27, 2018

Saudi Aramco is considering a bond issue to buy a 70% stake in Sabic. Link here.

• again, a 70% stake; essentially owning the company
• $50 to $70 billion price point
• huge implications for EU's petrochemical industry

From the linked article, three takeaways:

First:

The money from the acquisition will flow into the Public Investment Fund, which is responsible for the distribution of funds that will go into all the ambitious Saudi projects aimed at steering the economy away from just oil and into new directions. Given that both Aramco and Sabic are state-owned companies, the transaction will effectively mean taking the money from one pocket and transferring it to the other.

Second:

There is one problem with bond financing, though: Aramco would have to disclose its financial position, which is currently as much of a mystery as the size of China’s strategic petroleum reserve. According to some, the company’s unwillingness to disclose financial information was among the reasons for the delays of the initial public offering. But lenders would want to know this information before they part with their money, which puts Aramco in a difficult position.

Third:

The WSJ’s sources note that neither Aramco nor Sabic are too thrilled with the idea of a tie-up. Still, they don’t really have a say, it seems: prince Mohammed’s diversification plans need cash and a bond issue is one relatively safe way to get it if the underwriters convince the lenders they can trust Aramco.

All things being equal, Saudi Arabia will have to increase oil production to meet ever-increasing domestic demand (refining) and maintain current levels of exports.