It appears that the dealers in the Saudi Stock Exchange completely ignored the news of the completion of the Saudi Aramco deal to acquire a 70% stake in the Saudi Basic Industries Corporation (SABIC) from the Public Investment Fund (the country's sovereign fund), despite the fact that this deal took place between two global giants at a value of more than $ 70 billion .
And settled the Saudi benchmark index in yesterday's session - the day the announcement of the completion of the deal - at 7,310 points, after fluctuations in the movement of financial stocks and petrochemical companies.
While SABIC fell 0.5% yesterday, state-owned Aramco shares closed slightly higher by 0.3%, after the company said it had completed the acquisition with a value of $ 69.1 billion.
In morning trading Thursday, the Saudi main index fell 0.2% before recouping its losses and closing slightly higher by 0.6%, after SABIC shares closed up 2%, and Aramco contributed 1% after the day of the deal, which does not reflect its strength.
Misty in the scene
The economist and Qatari oil analyst Ahmed Al-Naimi said that the blurring of the scene regarding the future of oil prices, especially in light of the Corona virus crisis, may have formed a stronger influence on the Saudi Stock Exchange, compared to the impact of the grand deal of the global oil giant Aramco's acquisition of SABIC Petrochemical Company.
He added - in an interview with Al Jazeera Net - that what is currently controlling the movement of the giant Aramco and SABIC shares in the market is the outlook for the global energy market, at a time when crude prices are still at low levels compared to the period before Corona.
He pointed out that what determines the trends of investors in the stock exchanges at present is the direction of crude prices, and he pointed out that the shares that Aramco bought did not actually enter the company's portfolio, as this depends on the approval of the trustees.
SABIC said yesterday that Aramco may not dispose of its shares within the six months following its acquisition of this percentage, without obtaining prior approval from the Capital Market Authority and in accordance with the conditions it sets.
Oil prices fell in morning trading - on Thursday - due to fears that an increase in the number of new cases of coronavirus emerging in China and the United States, may discourage the recovery of demand for fuel, even with the easing of general isolation measures.
Brent crude futures fell to less than $ 40.5 a barrel, and West Texas Intermediate crude futures fell to $ 37.58 a barrel.
But analysts said that despite the falling prices, it is likely to remain in the range between $ 35 and $ 40 that has been trading since the beginning of June, with a commitment to a large degree from the OPEC Plus group.
A financial analyst, who preferred not to be named because he is not authorized to speak, said that the Saudi Stock Exchange did not interact with the Aramco deal because the news of the acquisition of SABIC shares was not new, but had already been talked about on several occasions, and the new - in the opinion of this analyst - is to complete its details and how to perform The sums involved.
The other reason, the analyst added, is that this deal is merely internal between Aramco, which is majority owned by the state and the public investment fund that is owned by the state, and whose purpose will be to liquidate funds to benefit the fund to support its investment aspirations abroad.
Asset Valuation
As for whether the price on which Aramco bought 70% of SABIC shares is exaggerated, while the stock is currently trading at about 90 riyals, Al-Naimi said that the price of trading in the markets differs from the fair value of the share at the time the assets were evaluated with the aim of buying them.
The deal estimated SABIC share at 123.39 riyals ($ 32.90) per share, up 27.5% from the company's share price of 89.40 riyals, at a time when demand for petrochemical products was affected by the outbreak of the Corona virus, which negatively affected the shares of the fourth largest petrochemical company in the world.
Regarding the timing of the Aramco deal to acquire the majority of SABIC shares, Al-Nuaimi considered that the fluctuations in oil prices since the beginning of the year made it difficult to conduct a true evaluation of SABIC, and that the inclusion of Aramco in the stock market made it more cautious in relation to its investment decisions and the method of evaluating the shares.
He said Aramco may have taken advantage of the recent agreement of OPEC Plus to end the price war and restore oil prices to stability even if it was at the range of 40 to 43 dollars, to complete its deal to buy a 70% stake in SABIC.
Al-Naimi was optimistic about the future performance of the stock exchanges, and in this regard he pointed to the positive trend of the American and European markets, in light of the partial lift of closures and the gradual recovery of the economy.
On the other hand, observers believe that the purchase price of SABIC was exaggerated, considering that the fair price is less than 90 riyals, due to the negative repercussions of the Corona crisis on oil and derivatives markets, in addition to the blurring of the outlook.
How to pay off the deal
Aramco said yesterday that the deal was fully funded by issuing payment orders to the Public Investment Fund upon completion of the deal, and the acquisition value will be paid in 9 installments until 2028, instead of a previously agreed deadline in 2025.
The first batch will be before August 2, at $ 7 billion and then $ 5 billion until April 7, 2021.
The previous agreement provided for the payment of 36% of the purchase price (about $ 25 billion) in cash when the deal was closed.
According to Reuters, some analysts have expressed concern that lower oil prices will make it difficult for Aramco to pay the government this year, although first-quarter distributions are in line with a $ 75 billion payment plan for 2020.
"The point of the entire Aramco SABIC deal is to manage the flow of liquidity, recurring costs and debt market methods within the same group," said Hassanein Malik, director of equity strategy at Telemer.
He added that the guaranteed distributions would provide protection in the short term to Aramco and some minority shareholders, but raised the question of whether the current stock price reflects the long-term risks of the oil price.
Today, Thursday, Aramco CEO Amin Al-Nasser said that the company will use a mixture of cash and debt to pay the dividend of $ 18.75 billion for the first quarter of this year.
In a statement to Al-Jazeera Net yesterday, financial analyst Taha Abdel-Ghani said that Aramco had no choice in the current circumstances other than financing the acquisition in installments up to 7 years.
Abdel-Ghani added that the drop in oil prices and lack of liquidity due to the Corona pandemic on the one hand and the decline in the share price of Aramco, may have prevented the company from resorting to borrowing from financial institutions for its high cost, or to put more of its shares on sale in international markets because of fears of declining confidence.
As for the financial analyst Nidal Khouli, he said that Aramco has resorted to financing the deal in installments, perhaps because of its unwillingness to overburden the local banks by requesting large amounts of money, at a time when these banks need these funds in light of the tight liquidity due to the Corona pandemic.