Aramco to Acquire Stake in JV Petro Rabigh from Sumitomo Chemical, Reports Reuters

By Yuka Obayashi and Yousef Saba

TOKYO/DUBAI – Saudi Aramco will acquire a 22.5% stake in the petrochemical joint venture Petro Rabigh from Japan’s Sumitomo Chemical for $702 million, as announced by the companies on Wednesday. This move is part of a plan to address the financial challenges faced by the underperforming venture.

As part of the agreement, both Aramco and Sumitomo Chemical will each contribute $702 million in funding to Petro Rabigh and forgo a total of $1.5 billion in loans.

By the end of June, Petro Rabigh reported accumulated losses amounting to 8.871 billion riyals, approximately $2.36 billion, which constitutes over 53% of its share capital. This financial situation has triggered requirements under Saudi law, which mandates that if a company’s losses exceed half of its issued capital, it must propose corrective actions within 60 days. Furthermore, an extraordinary general meeting must be convened within 180 days to either take measures to rectify the losses or consider the dissolution of the company.

With this transaction, Sumitomo Chemical’s ownership in the venture will decrease to 15%, while Aramco’s stake will rise to 60%. The remaining 25% will continue to be held by stock market investors.

Petro Rabigh attributed its accumulated losses primarily to unfavorable market conditions that led to reduced or negative profit margins on refined and petrochemical products, coupled with increased finance costs due to rising interest rates.

The agreement is part of Aramco’s strategy to expand in downstream markets like refining, while it also aligns with Sumitomo Chemical’s shift from commodity chemicals to specialty chemicals.

"While we initially decided not to increase our exposure to Petro Rabigh, we have designed a plan to cash out our stake and reinvest the funds into the joint venture," stated Sumitomo Chemical President Keiichi Iwata. "We believe this strategy presents the best option."

When asked about the possibility of further reducing its stake in Petro Rabigh, Iwata confirmed, "No such plan at present."

Sumitomo Chemical is expected to report a pretax loss of 27 billion yen in the July-September quarter due to this deal, but it will maintain its annual profit forecast issued in April.