DUBAI—Saudi Arabia’s national oil company has agreed to buy a 70% stake in Saudi Basic Industries Corp., the kingdom’s petrochemicals firm, for $69.1 billion, giving Crown Prince Mohammed bin Salman’s agenda a massive jolt of cash. The 33-year-old crown prince has grand plans to diversify the kingdom’s oil-dependent economy. Those ambitions have been knocked off stride by foreign criticism of Saudi actions, including the murder of journalist Jamal Khashoggi. Foreign-direct investment, already in decline, remains anemic. The merger of oil giant Aramco and Sabic, as the petrochemicals firm is known, also comes during economic troubles in Saudi Arabia. Some of the prince’s policies—such as raising taxes and cutting subsidies—have caused painful adjustments for individuals and businesses, while oil prices remain below levels that the kingdom needs to balance its budget. Over more than two years, Saudi Arabia has taken on debt faster than almost any other emerging-market economy, issuing more than $70 billion in sovereign bonds. The deal announced Wednesday would join the country’s two largest companies. In doing so, the deal will hand the Saudi sovereign-wealth fund, Sabic’s current owner, roughly the same amount of money it had expected to reap from an initial public offering for Aramco. A listing for Saudi Arabian Oil Co., the petroleum-producing giant’s formal name, was planned for last year, but then postponed. Prince Mohammed has said the IPO will still happen but not until 2021. The Sabic deal, which was announced in Riyadh, had been talked about openly by both companies for more than a year. They were reluctant to tie up, but after months of negotiations agreed to do so at the urging of Prince Mohammed, according to Saudi officials. Prince Mohammed emerged from relative obscurity when his father, King Salman, assumed power in 2015. He became crown prince and de facto leader in 2017, as the king pushed aside a powerful heir apparent from a different part of the royal family. Newsletter Sign-up Notes on the News Today’s headlines, news in context, and good reads you may have missed, with Tyler Blint-Welsh. PREVIEW Since his ascension, Prince Mohammed has introduced social changes while also laying out plans to broaden the Saudi economy through investments abroad and the development at home of entirely new industries in tourism and entertainment. The Sabic deal, with its transfer of cash, gives Prince Mohammed a freer hand to pursue his domestic dreams. The Public Investment Fund, or PIF, is the main vehicle for his economic plans, known as Vision 2030. The sovereign-wealth fund has become one of the world’s biggest tech investors through its partnership with SoftBank Group Corp. and its roughly $100 billion Vision Fund. It has invested in Uber Technologies Inc. and partnered with Blackstone Group LP in a $20 billion infrastructure fund. While PIF aims to increase the nation’s wealth by investing overseas, it is also funding multibillion-dollar projects at home to create jobs for Saudi Arabia’s young population. Those efforts include building a Disney World-style metropolis of theme parks and resorts on the outskirts of Riyadh and a conurbation of hotels and tourist attractions on the Red Sea. PIF is also overseeing the development of a $500 billion futuristic city called Neom. The sovereign-wealth fund’s plans are the most eye-catching elements of Vision 2030. But other more-mundane steps, such as the introduction of Western-style laws to attract foreign investment, are equally important, according to Robin Mills, chief executive of Dubai-based consulting firm Qamar Energy. Saudi officials “may argue that the PIF is needed to kick-start things,” Mr. Mills said. “But the structural reforms also need to come.” Foreign-direct investment in the kingdom has waned over the past decade, and disruptive moves by Prince Mohammed have only complicated the environment for international investors. The killing of Mr. Khashoggi at a Saudi consulate in Turkey sparked outrage in global capitals. Other marks against the Saudi government include the detention of hundreds of Saudi businessmen at the Ritz Carlton hotel in Riyadh in 2017, a feud with Qatar that has damaged regional trade, and the civilian casualties in the Saudi-led war in Yemen. Prince Mohammed’s reform program was due to get a boost last year from an Aramco IPO, with its proceeds flowing to PIF. But the listing plan stalled, triggering a search for alternative ways to fund the sovereign-wealth fund and the prince’s agenda. “This is a way for the PIF to use Aramco to increase its liquidity…to get money they would have gotten from an IPO,” said Ellen Wald, the president of Transversal Consulting and author of Saudi Inc., a corporate history of the kingdom. Marrying Aramco and Sabic will create one of the world’s biggest makers of petrochemicals, a part of the oil business that executives and analysts have said will be resiliently profitable even if alternative energies take hold in the future and crude prices fall. Aramco executives said Wednesday the deal would help it achieve a goal of doubling its oil-refining capacity by 2030. The merger idea was met with resistance at first at both Aramco and Sabic. The petrochemical company’s executives blanched at the thought of a takeover of their firm—the largest publicly listed company in Saudi Arabia and arguably the country’s most global business, with operations in 50 countries. Aramco executives were wary about the timing and price. Generally, big oil-industry acquisitions are done when oil prices sink, bringing down valuations of target companies. This deal is being done more than three years after oil prices hit bottom at about $27 a barrel in January 2016—when Sabic’s share price had fallen below 62 Saudi riyals, or $16.50. Sabic’s share price has since doubled and now oil sells at almost $68 a barrel. The deal would also force Aramco to take on significant levels of debt. Aramco didn’t disclose Wednesday how it would finance its deal for Sabic. The oil company has considered using a corporate bond for the acquisition, with Aramco executives traveling to the U.S. last month to gauge investor appetite for a roughly $10 billion issuance, The Wall Street Journal has reported. The company had considered issuing up to $40 billion in what would have been one of the world’s largest ever corporate-bond sales, but has since favored a smaller issuance combined with an agreement to pay PIF over time for the Sabic stake. Aramco has a relatively small amount of debt compared with other global oil giants, such as Exxon Mobil Corp. and Royal Dutch Shell PLC, making it easy for the Saudi firm to borrow cheaply. The Saudi oil giant doesn’t disclose financials but has said it would issue audited statements with a bond sale. Aramco agreed to pay 123.40 Saudi riyals a share for the 70% stake in Sabic, slightly below the stock’s closing price Wednesday of 124.2 riyals. The petrochemical firm’s shares were trading at roughly 129 Saudi riyals in July ahead of reports that Aramco was considering buying PIF’s stake. Aramco executives had pushed to pay nearer 100 Saudi riyals a share for Sabic, the Journal reported in September. In the end, the oil company agreed to pay closer to market price in part to ensure that public shareholders don’t lose out in a deal, according to people familiar with the matter. Sabic, which employs about 34,000 people at operations world-wide, currently lists 30% of its shares on the Saudi stock exchange and has a market capitalization of roughly $100 billion based on its listed price. Aramco said it had no plans to buy the rest of the company. Write to Summer Said at summer.said@wsj.com and Rory Jones at rory.jones@wsj.com<doc-sep>Become an FT subscriber to read: Leverage our market expertise Expert insights, analysis and smart data help you cut through the noise to spot trends, risks and opportunities. Join over 300,000 Finance professionals who already subscribe to the FT.<doc-sep>Saudi Arabia's national oil company is doubling down on petrochemicals as the sector plays an increasingly important role in oil demand. Saudi Aramco announced Wednesday it is acquiring a 70 percent majority state in the petrochemical company Saudi Basic Industries Corporation (SABIC) in a $69.1 billion deal. Saudi Aramco said the deal advances its efforts to expand refining and gain a bigger share of the fast-growing petrochemical industry. The company said it wants to increase its global refining capacity from 4.9 million to 8 million to 10 million barrels per day by 2030. About 2 million to 3 million barrels per day will be converted into petrochemical products. And Aramco's petrochemical and refining operations will consume plenty of Saudi Arabian crude oil. RELATED: Deer Park fire a ‘blemish’ for the petrochemical industry's image "This transaction is a major step in accelerating Saudi Aramco's transformative downstream growth strategy of integrated refining and petrochemicals. SABIC is a world-class company with an outstanding workforce and chemicals capabilities," Amin Nasser, President & CEO, Saudi Aramco said in a statement. "As part of the Saudi Aramco family of companies, together we will create a stronger, more robust business to enhance competitiveness and help meet rising demand for energy and chemicals products needed by our customers around the world." SABIC, based in Saudi Arabia, has 34,000 employees in 50 countries, including 5,000 employees in the Americas region. It has offices in Houston and is also partnering with ExxonMobil on building a nearly $8 billion petrochemical complex near Corpus Christi. EARLIER: Wood Group signs on for massive Exxon-Saudi project near Corpus Christi Saudi Aramco's further expansion into refining and petrochemicals could provide additional protection from flattening oil demand, noted Steve Zinger, chemical vice president of the research firm Wood Mackenzie. Last year petrochemicals accounted for about 13 percent of oil demand, but that number will grow to 20 percent in 2035, according to Wood Mackenzie. "Petrochemicals are expected to be one of the main drivers of oil demand growth through to 2040 and SABIC brings this through deep downstream market positions," Zinger said in a statement. "An acquisition approach allows Saudi Aramco to obtain further exposure to petrochemical markets more quickly than would be the case via a sole focus on organic expansion and development. " SABIC has a net income of $5.7 billion with a total production volume of 75 million metric tons across all of its business units. Operating in the Americas since 1987, SABIC expanded further in 2007 with the acquisition of GE Plastics, a major manufacturer and supplier of highly engineered thermoplastics. H.E. Yasir Othman Al-Rumayyan, Managing Director, Public Investment Fund of Saudi Arabia, said the SABIC acquisition will enable the country to further diversify its revenue streams. Meanwhile Saudi Aramco's subsidiaries, refining giant Motiva Enterprises, also is considering getting into the petrochemical business starting with a potential $6.6 billion project on the Gulf Coast. Aramco also has joint ventures with other companies to build new petrochemical sites in China, India and Malaysia.<doc-sep>
Saudi Arabia's state-controlled energy giant Aramco has reached a $69.1 billion deal to purchase a majority stake in petrochemicals firm Sabic from the kingdom's sovereign wealth fund. The deal will see Aramco purchase the 70 percent stake in Sabic held by Saudi Arabia's Public Investment Fund in a share purchase agreement. It will expand Aramco's footprint in refining and petrochemicals and inject cash into PIF, which underpins ambitious plans to remake Saudi Arabia's economy. Aramco and PIF announced the news Wednesday shortly after CNBC and other news outlets confirmed the transaction. The deal remains subject to closing conditions and regulatory approvals. "This is a win-win-win transaction and a transformational deal for three of Saudi Arabia's most important economic entities," PIF Managing Director Yasir Othman Al-Rumayyan said in a statement. "It will unlock significant capital for PIF's continued long-term investment strategy, underpinning sectoral and revenue diversification for Saudi Arabia." Saudi Arabia is attempting to diversify its economy and reduce its reliance on oil revenues under a plan called Vision 2030 directed by Crown Prince Mohammed bin Salman. Plans to sell shares in Aramco are meant to underwrite that endeavor, but an initial public offering on an international exchange has been delayed by several years. The Aramco-Sabic deal further delayed the IPO plans — the company now expects to list shares in 2021. The kingdom sought to raise $100 billion by publicly listing a small percentage of Aramco. Wednesday's agreement comes as Aramco, the world's largest oil company by production, is expanding its high-value downstream operations, which includes refining crude oil into fuels and making petrochemicals. Aramco currently has the capacity to produce 17 million tons of petrochemicals per year, while Sabic's capacity is 62 million tons. By 2030, Aramco aims to increase its refining capacity from 4.9 million barrels per day to 8 million to 10 million bpd. "This transaction is a major step in accelerating Saudi Aramco's transformative downstream growth strategy of integrated refining and petrochemicals," Aramco President and CEO Amin Nasser said in a statement. "SABIC is a world-class company with an outstanding workforce and chemicals capabilities." Sabic has operations in 50 countries and employees about 35,000 people around the world. Investors own the remaining 30 percent stake in Sabic through shares listed on the Saudi stock exchange. Aramco says it does not intend to purchase those shares. — CNBC Hadley Gamble contributed reporting to this story.