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Bankers are considering potential financing of $ 70 billion to support the acquisition by Saudi Aramco of a majority stake in Saudi Basic Industries Corporation (SABIC).
Aramco's objective is to acquire a majority stake in SABIC, a petrochemical producer, and to buy back all of the shares held by the Public Investment Fund, the largest sovereign wealth fund in the country, at 70%.
The market value of SABIC listed on the Riyadh Stock Exchange and the fourth largest petrochemical company in the world is 385.2 billion riyals ($ 103 billion) and will cost 70% to purchase about $ 70 billion.
Reuters has already reported that the choice had been signed by JPMorgan and Morgan Stanley to advise on the case.
Bankers conduct internal discussions about the possible need for Aramco to finance external debt, possibly in the form of bonds or loans. Sources say that Aramco has not yet sent a request for proposals from its lenders.
A banker said "nothing has happened yet but all the banks are considering it."
The likelihood and magnitude of the loan contract depend on the fact that the public investment fund, the seller's part, will seek to confirm the availability of cash to finance the acquisition which will mean that Aramco will have to raise funds in advance rather than paying them back any longer.
The banker said: "Aramco may have to raise money in advance and possibly repay it in agreed installments and possibly include a bridging loan."
But it may be difficult to obtain information on a possible agreement, as negotiations will be conducted by Crown Prince Muhammad bin Salman
.
The banker said, "We want to go out and have meetings to discuss the issue, but I do not think anyone will have enough knowledge. It's headed by the Crown Prince, I do not even think that people at Aramco's level know what's going on. "
The Loan Agreement of the Lenders
boosted potentially significant debt financing in the Middle East, which fell to only $ 4.4 billion in the second quarter, the lowest quarterly since the second quarter of 2004, local and foreign banks.
In early 2016, Prince Mohammed announced that he was considering selling Aramco shares as part of an IPO planned for 2018, which aims to raise more than $ 100 billion. dollars in a new sovereign wealth fund.
The IPO was delayed until at least 2019, which means that the banks associated with Aramco should provide any financing to buy SABIC at a very low interest rate in order to participate in the initial offer.
A second banker said: "US investment banks, three Japanese banks, all French banks, some German banks and many Middle Eastern banks, including Saudi banks, will want to lend as much as possible."
Banks that are unlikely to participate in the planned IPO will be less willing to lend at low interest rates because banks' return on capital remains under pressure.
A third banker said: "If there is an agreement, it will be very cheap – double-digit price.
Aramco's general manager, Amin al-Nasser, said at the beginning of the month that the acquisition of an interest in SABIC could also affect the timing of the initial offer provided by Aramco, so this may eliminate the need to do so.
The Fund Public Investment can receive up to $ 70 billion from the sale of its stake in SABIC, which gives it sufficient funds to start ambitious infrastructure projects and development projects planned by the Kingdom
SABIC, which has ratings A1, A and A +, said in May that it was expecting to refinance an external debt of about $ 2 billion. Bankers say that it is unlikely that a possible change of ownership will alter this Plans.
The company has bonds worth $ 1 billion maturing on October 3 and has appointed banks to obtain international bonds. No decision has yet been taken on the timing and conditions of the matter.
SABIC received a $ 1 billion fixed-term loan maturing July 18. The company is expected to use withdrawals from a $ 2 billion revolving revolving credit facility to repay the loan until the $ 2 billion refinancing is completed. Bankers say the discussions are ongoing.
A fourth banker said: "We are discussing different things with SABIC, which may give something in. There was no real agreement on the purpose for which the funds would be used."
The fixed term loan contract is due to 2013 by a banking pool and the interest rate of the loan is 50 basis points above the interbank offered rate in London (LIBOR). The revolving credit line was activated in December 2015 at a 25 basis point interest rate over the Libor
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