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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 aims to acquire a majority stake in the petrochemical giant SABIC, It can buy back all the shares held by the Public Investment Fund, the largest sovereign fund of the kingdom, to 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 the cost of buying 70% will be 39, about 70 billion dollars.
Reuters has already reported that the choice was signed by JPMorgan and Morgan Stanley to give advice 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 banks are considering it."
The likelihood and magnitude of the planned debt depend on the willingness of the public investment fund, the seller, to confirm the availability of cash to finance the acquisition, which may 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 pay back in agreed installments and may include a bridging loan."
But getting information on a possible deal can be difficult, as negotiations will be conducted by Crown Prince Mohammed bin Salman.
"We want to go out and have meetings to discuss the issue, but I do not think anyone has enough knowledge, it's something that the Crown Prince leads, I do not even think that the people of the day are going to be there. Aramco know what's going on. "
The eagerness of lenders
could spur a major potential debt financing agreement in the Middle East, which reached only $ 4.4 billion in the second quarter, the quarterly low since the second quarter of 2004, domestic and foreign banks.
In early 2016, Prince Mohammed bin Salman announced that he planned to sell Aramco shares as part of an initial IPO scheduled 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.
"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," said a second banker.
Banks that are unlikely to participate in the planned IPO will be less willing to lend at low interest rates because the return on banks' capital remains under pressure.
A third banker said, "If there is an agreement, it will be very cheap – a two-digit tariff." If we do not get extra work, why should we lend too cheap?
Aramco's general manager, Ameen al-Nasser, said earlier this month that the acquisition of an equity interest in SABIC could also affect the timing of the initial offer expected by Aramco and could even eliminate the need to do so.
The Public Investment Fund can receive up to 70 billion dollars from the sale of its stake in SABIC, which gives it sufficient funds to start infrastructure projects and a development ambitious planned by the Kingdom.
SABIC Refinance
SABIC, rated A1, A and A +, said in May that it was expecting to refinance an external debt of about $ 2 billion. Here october. Bankers say it's unlikely that a possible change of ownership will alter plans.
The company has bonds worth $ 1 billion maturing on October 3 and has appointed banks to hold international bonds. No decision has yet been taken on the timing and conditions of the issue.
SABIC received a $ 1 billion fixed-term loan maturing July 18. The company is expected to use withdrawals from a $ 2 billion 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 various issues with SABIC, which can give something." There was no real agreement on the purpose for which the funds would be used.
The fixed term loan contract is due to 2013 through the intermediary of a syndicate and the interest rate of the loan is 50 basis points above the interbank rate offered to London (LIBOR). The revolving credit facility was activated in December 2015 at an interest rate of 25 basis points over the Libor.
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