Saudi’s Aramco plan B is too clever by half | ZAWYA MENA Edition

Saudi’s Aramco plan B is too clever by half | ZAWYA MENA Edition:

Mohammed bin Salman’s financial engineers are earning their fees. Plans for the Saudi crown prince to spearhead a triumphant listing of domestic oil titan Aramco are on ice, but his advisers have a workaround - Aramco may now create the cash itself by borrowing money and buying a stake in chemicals group. It’s a clever idea, but no substitute for plan A.

Looked at as a piece of corporate strategy, splicing together Aramco’s huge oil reserves with SABIC doesn’t automatically create much value. It makes more sense to see the leveraged acquisition as a way to replace the $100 billion that won’t materialize if Riyadh fails to list Aramco. If the similarly state-owned Aramco buys the stake then the Public Investment Fund, earmarked as the engine for the crown prince’s Vision 2030 drive to diversify away from oil, would still have a chunk of cash for pursuits such as investing with Masayoshi Son’s Vision Fund.

Aramco can probably afford the move. It has minimal debt, Bloomberg reported on April 13, and made over $34 billion of net income in the first half of 2017. With a probable value exceeding $1 trillion, bond markets and banks would be happy to provide it with the roughly $70 billi