Aramco floats downstream in many cases

Aramco floats downstream in many cases

Suddenly, Saudi Aramco is a bustling frenzy of commercial activity. In just under a month, the KSA oil giant has signed this year some of the largest deals in the business world and strengthened its reputation beyond crude oil in the fields of finance, petrochemicals and refining. Anything after that?

Since the end of last month, when Aramco announced the conclusion of an agreement on the acquisition of a majority stake in SABIC – the largest business transaction in the world. history of the United Kingdom – it broke all records in terms of issuing emerging debt with the $ 12 billion bond that drew eight times that amount in the interest of global investors.

Then came the agreement of $ 1.25 billion to acquire a 17% stake in South Korean bank Hyundai Oil Bank, followed a few days later by the announcement of a possible agreement $ 15 billion in up to 25% of Reliance Industries' Reliance and Petrochemicals business. from India. Finally, although the transactions arrive so quickly, there is no guarantee of purpose, it was announced that Aramco had bought from Royal Dutch Shell the 50% it did not already own the SASREF refining joint venture in the Kingdom.

Why this sudden activity? Some observers assume that Aramco is splurging with the funds raised during the record bond issue. This is highly unlikely for several reasons. First, Aramco was already the most profitable company in the world, with an annual profit of $ 111 billion, according to the bond prospectus. She therefore did not need the injection of bond funds to enable her business acquisitions program.

Second, the proceeds of the bond are theoretically affected, at least in part, by the SABIC transaction, which is expected to be finalized later this year. But the same general principle also applies here: Aramco does not really need to go to the markets specifically to obtain funds for the acquisition of SABIC.

Some mischievous skeptics claimed that Aramco had to find certain transactions to justify all the very expensive bankers, lawyers and investment consultants who were associated with the first historic public offering (IPO), which has now been postponed to 2021. seems unfair.

This explosion of activities is in fact the support of two main axes of the strategic direction clearly indicated by Aramco during the last two years: the security of the markets – especially in the East – for its crude; and further develop its expertise and capabilities in refining and petrochemicals in a rapidly changing global market for downstream activities.

The recent recent business activity has clearly revealed a trend: Aramco is looking downstream and growing further east.

Frank Kane

This is the overarching goal of the SABIC agreement, which aims to create a global petrochemical giant through synergies of Aramco's feedstock with SABIC's production capacity and know-how.

The agreement with Korea aimed to strengthen Aramco's investments in what is known as the "complex" refining sector in Asia, where demand for Arab-type crude and petrochemicals is evident. "Providing long-term supply options for crude oil placement," commented Aramco.

The deal with India is perhaps the most intriguing. A little less than a year ago, Aramco partnered with ADNOC (United Arab Emirates) and Indian oil companies in a $ 44 billion project to build a huge refining complex in the United States. Ratnagiri, but this project has lagged behind in planning and the environment. Although Aramco remains committed to Ratnagiri, it certainly leaves all options open and shows its confidence in the Indian market in the long run, with the Reliance deal.

The agreement with Shell should be seen as part of the same downstream goal, but this time at home, where the demand for refined products will increase to fuel the Kingdom's industrial projects. Shell and several other large western oil companies have been looking for some time to reduce their traditional oil refining portfolio to natural gas and petrochemicals.

The recent recent business activity clearly shows that: Aramco is looking downstream and growing further east.

But given its global outlook and its new financial strength, this would not prevent a big problem in the booming energy markets of the Western Hemisphere, if any. The Aramco Business Advisory Army is probably planning something right now.

•Frank Kane is an award-winning business reporter based in Dubai.
Twitter: @ frankkanedubai

Disclaimer: The opinions expressed by the authors in this section are theirs and do not necessarily reflect the views of Arab News.