Saudi Aramco Buying 70% Of SABIC In $70 Billion Cash Injection For Mohammed bin Salman

Saudi oil giant Saudi Aramco is acquiring a 70% stake in the country's petrochemcial firm Saudi Arabian Basic Industries Corporation - or SABIC - from the country's sovereign wealth fund, Aramco reported on its Twitter account shortly after Bloomberg leaked the news on Wednesday morning. The remaining 30% publicly traded shares in SABIC will not be part of the transaction

The agreed purchase price for the shares is 123.40 riyals per share, totaling 259.125b riyals, which is just shy of $70 billion.

The Aramco deal will give billions of dollars to Saudi Arabia’s Public Investment Fund, which has become one of the world’s biggest tech investors in recent years. Above, employees at Saudi Aramco's Shaybah oil field last year

The transaction will give Crown Prince Mohammed bin Salman’s agenda a giant jolt of cash according to the WSJ, adding that the agreement culminates over a year of negotiations between Saudi Arabia’s two biggest companies, which Prince Mohammed has urged to tie up to free up money for his economic agenda. The deal would give billions of dollars to the Public Investment Fund, which has become one of the world’s biggest tech investors in recent years in collaboration with Japan's SoftBank.

The Sabic deal was initially proposed last year after the oil giant’s plans for an IPO were indefinitely postponed after potential investors threw up on the $2 trillion valuation proposed by MbS. By channeling money from Aramco to the PIF, two arms of the Saudi state, the deal offered another route to the cash originally sought from the offering.

Saudi Aramco may stagger payments for the Sabic acquisition, offering flexibility in how to finance the largest deal in the kingdom’s history, Al-Falih said in January. The company has very little debt and plans to issue bonds to fund at least part of the purchase. Saudi Aramco picked banks including JPMorgan Chase & Co., Morgan Stanley, Citigroup Inc., HSBC Holdings Plc, National Commercial Bank to manage the bond sale, people familiar with the matter have said.

As a reminder, this is merely a money "recirculating" transaction meant to provide funding to Saudi Arabia by way of international creditors, who will be expected to buy tens of billions in bonds from Aramco as we explained last year.

This is how we simplified the money flow last July: the cash goes from international yield chasers, to a consortium of banks, to Aramco, to Sabic, to Crown Prince MbS.

the question is on what terms will this massive debt issuance come to market. To be sure, the deal comes at a good time for bond demand just as yields are crashing around the globe, more than $10 trillion in debt is negative yielding once again, and the global yield chase means that even a company as opaque as Aramco should have little trouble in raising the massive funds which will then be promptly used by the Crown Prince to fund his personal agenda.