SAUDI ARAMCO last week announced its intention to buy a major share in the Saudi petrochemical company Sabic, which is the fourth largest company in the world with market value close to $100 billion. It has appointed two major American financial consultants to assess and evaluate Sabic assets. This could take some time which would certainly result in delays in the sale of five percent of Aramco shares in international stock market. Sabic is 70 percent owned by Saudi Public Investment Fund and the remaining by the public sector.
However, the intention is for Aramco to buy the government share, so that it can become part of Aramco and be run by it. No timeframe has been indicated about the actual takeover. The question that has been raised is related to the main intention behind such a move.
Aramco already has a petrochemical joint venture with Dow by 50 percent, the biggest in Saudi Arabia worth about $20 billion. It has the most advanced technology that can produce new type, the only kind to be exported to potential Asian markets and with almost no competition. This is a challenging question that Aramco management should answer.
The company is focused on and dedicated to its core business in oil, with expansion plans in every stream in oil for becoming the top producer and the number 1 in the world. At the same time, it is searching for safe homes for its crude oil by investing in building refineries in the consuming countries in joint ventures with those countries. So, focusing on another core business is a challenging task and it could lead to distraction and loss of focus at the same time.
The right approach, or the best one, could have been selling Aramco’s share with Dow to Sabic and creating the two biggest companies in Saudi Arabia, if not in the world. One would be specialized in oil and would be headed by Aramco, while the other would be specialized in petrochemicals and will be headed by Sabic with the strongest partner in the world — Dow Chemical.
There could be another motive that may necessitate such a move by enhancing Aramco assets, which is financial. It may still get the value or raise it to $2 billion — the price that the Saudi government is seeking as market value for entire Aramco. This however will not necessarily be the case. The international Boursa will certainly have different evaluation values. Undoubtedly, buying into domestic petrochemical company will distract the Aramco management from focusing on their core business of oil. However, we could be wrong.
By Kamel Al-Harami Independent Oil Analyst