Saudi Aramco in talks to acquire 10% stake in Chinese refiner Shenghong

World's largest oil exporting company has been expanding its presence in vital markets globally and bolstering its downstream operations

Saudi Aramco and Jiangsu Eastern Shenghong also intend to co-operate on the development of a large expansion project. Photo: Aramco

Saudi Aramco, the world’s largest oil exporting company, has begun preliminary discussions with Jiangsu Eastern Shenghong, to acquire a 10 per cent equity stake in the China-based energy company's petrochemical subsidiary.

As per the co-operation framework agreement signed between the two companies, Aramco “intends to become a strategic investor in Jiangsu Shenghong Petrochemical Industry Group”, it said on Wednesday, referring to the subsidiary.

The possible acquisition of a minority stake is however “subject to due diligence and required regulatory clearances”, Aramco said.

The Saudi exporter would also supply crude oil and other feedstock to Jiangsu Shenghong Petrochemical Industry Group as part of the agreement.

Both companies also intend to co-operate on the development of a large expansion project.

“The signing of this co-operation framework agreement is another significant milestone in Aramco’s downstream strategy to increase conversion of Arabian crude oil to chemicals and to expand into the critically important Chinese market,” Mohammed Al Qahtani, Aramco's downstream president, said.

Jiangsu Eastern Shenghong said the strategic framework agreement “does not create any legal obligation or formal commitments but only reflects the preliminary intentions and principle of cooperation between the two parties”.

Located in the Xuwei Petrochemical Industrial Park in China’s Jiangsu province, Jiangsu Shenghong Petrochemical Industry Group owns and operates an integrated refinery and petrochemicals complex with a capacity of 320 million barrels per day.

It also owns a methanol-to-olefins and derivatives complex as well as a purified terephthalic acid production facility through its wholly-owned subsidiaries.

Aramco is third-most valuable company in the world, with a market value of $2.08 trillion, behind Microsoft ($2.44 trillion) and Apple ($2.86 trillion) as of August 6. It is the second-largest company by revenue behind Walmart, which has held the top position since 2014.

Last month, the company said its second-quarter net profit softened due to voluntary production cuts and lower crude prices, although the results were in line with analyst expectations.

Net profit after zakat for the three-month period to the end of June fell 38 per cent to about $30.1 billion, from its record $48.4 billion in the year-earlier period, the company said at the time.

Aramco has been expanding its presence in vital markets globally and bolstering its downstream operations.

Last month, it agreed to buy a 100 per cent equity stake in Esmax Distribuscion, a downstream fuels and lubricants retailer in Chile, from private equity company Southern Cross Group.

In July, Saudi Aramco closed a deal to acquire a 10 per cent stake in Shenzhen-listed Rongsheng Petrochemical for $3.4 billion.

Four months earlier, a Saudi Aramco unit had acquired a 10 per cent stake in Rongsheng Petrochemical, in a deal valued at $3.6 billion that would “significantly” expand its refining operations in China.