China offers to buy 5% stake in Saudi oil giant

China is offering to buy up to 5% of Saudi Aramco directly, in a move that could give Saudi Arabia the flexibility to consider various options for its plan to float the world’s biggest oil producer on the stock market.

Chinese state-owned oil companies PetroChina and Sinopec have written to Saudi Aramco in recent weeks to express an interest in a direct deal, industry sources said.

The companies are understood to be part of a state-run consortium including China’s sovereign wealth fund.

Saudi Arabia’s Crown Prince Mohammed bin Salman said last year the kingdom was considering listing about 5% of Aramco in 2018 in a deal that could raise $100bn (€85bn), if the company is valued at about $2tn as hoped.

“The Chinese want to secure oil supplies,” one of the industry sources said. “They are willing to take the whole 5%, or even more, alone.”

The IPO of Saudi Aramco is the centrepiece of an economic reform plan to diversify the Saudi economy beyond oil and it would also provide a welcome boost to the kingdom’s budget which has been hit by low oil prices.

But the IPO plan has created public misgivings that Riyadh is relinquishing its crown jewels to foreigners cheaply at a time of low oil prices. Some Aramco employees would like the whole idea to be shelved, sources say. Internal disagreements between what some advisers recommend and what the crown prince wants have delayed several key decisions about the IPO, industry sources said.

The sources also point to disagreements between senior government officials, with some pushing only to list Aramco locally or to delay the IPO beyond 2018 when they hope oil prices will have stabilised at $55 to $60 a barrel.

“A range of options, for the public listing of Saudi Aramco, continue to be held under active review.

“No decision has been made and the IPO process remains on track,” said a Saudi Aramco spokesman.

Industry sources said the sale of a significant stake to Chinese firms was one of several options being considered by the kingdom as it weighs the benefits of a public listing.

One option includes selling some stock immediately to so-called cornerstone investors, such as China, and then selling shares on the local bourse as well as an international stock exchange, with New York, London and Hong Kong in the running.

Two senior industry sources said Riyadh was keen on China, its biggest buyer of oil, becoming a cornerstone investor in Aramco. But no decision has yet been taken on whether to accept China’s offer, or how much stock could be offered to cornerstone investors.

Other sources have linked sovereign wealth funds from South Korea and Japan to acquiring a stake in Aramco. Russia’s sovereign wealth fund RDIF is understood to be keen to invest in the Aramco IPO too.

Any alliance between Saudi Arabia and China could go beyond the purchase of a stake in Aramco and also include a reciprocal move by the Saudi company to invest in the Chinese refining industry.

Reuters