Aramco downsizes purchase of Hyundai Oilbank stake

State-owned Saudi Aramco has agreed to buy 17pc of South Korean refiner Hyundai Oilbank for around $1.2bn, after tweaking the deal to initially take a smaller interest than previously planned.

Aramco will buy nearly 41.7mn shares in Oilbank, the refiner's parent company Hyundai Heavy Industries said. The purchase price is more than 1.37 trillion won ($1.21bn).

The two companies signed a preliminary agreement in January, when Hyundai Heavy said that Aramco would buy a 19.9pc stake in Oilbank for as much as W1.8 trillion. The final purchase price and the number of shares sold could be altered through negotiations, it said at the time.

Aramco will have still have the opportunity to buy the full 19.9pc interest that was planned, as the final agreement includes call options to acquire as many as 7.11mn shares, or another 2.9pc of Oilbank. The options can be exercised before the refiner's initial public offering (IPO), which could happen as soon as this year after being delayed from 2018. But Aramco will have five years to raise its stake to 19.9pc if the IPO is pushed back again or does not happen.

The Saudi company also negotiated a lower share price than was contemplated in January. It is paying only 76pc of the maximum consideration that Hyundai Heavy targeted, despite initially buying more than 85pc of the shares planned. Hyundai Heavy will hold 74.13pc of Oilbank's shares when the stake sale is completed.

The deal will add to Aramco's holdings in a country where it already owns a 63pc controlling interest in S-Oil, South Korea's third-largest refiner. The transaction has the potential to help both companies, enabling Aramco to sell more crude in South Korea while giving Oilbank access to the Saudi company's massive business network. The tie-up may speed the refiner's expansions into petrochemicals, base oils and other areas outside its core business.

Oilbank is one of three South Korean companies that import condensate from Iran, Saudi Arabia's chief geopolitical rival. Other Aramco refining affiliates in Asia-Pacific, including Japan's Showa Shell and Fuji Oil, have not been precluded from doing business with Tehran over the years. S-Oil is not a buyer of Iranian condensate.

Aramco is the largest crude supplier to import-reliant South Korea. Seoul's oil imports from Saudi Arabia rose by 1.2pc to more than 885,000 b/d last year, even as supplies from the Middle East as a whole dropped by 10pc to 2.25mn b/d, according to data from state-owned oil company KNOC. Imports from Saudi Arabia in January-February this year fell by 4.5pc from the year-earlier period to 937,000 b/d.

The Oilbank transaction comes as Aramco is acquiring a 70pc stake in state-owned Saudi petrochemicals producer Sabic for $69.1bn.