China is offering to buy up to 5 percent of Saudi Aramco directly, sources said, 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 told Reuters. The companies are part of a state-run consortium including China's sovereign wealth fund, the sources say.
Saudi Arabia's Crown Prince Mohammed bin Salman said last year the kingdom was considering listing about 5 percent of Aramco in 2018 in a deal that could raise $100 billion, if the company is valued at about $2 trillion as hoped.
"The Chinese want to secure oil supplies," one of the industry sources said. "They are willing to take the whole 5 percent, or even more, alone."
PetroChina and Sinopec declined to comment.
The initial public offering (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.
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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.
CORNERSTONE INVESTOR
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, the sources said.
China is creating a consortium made up of state-owned oil firms, banks and its sovereign wealth fund to act asa cornerstone investor in the IPO, people with knowledge of the discussions told Reuters in April.
Sources told Reuters on Friday that Saudi Aramco was now evaluating a private placement of shares to a Chinese investor as a precursor to an international IPO, which could be delayed beyond 2018.
But allowing China to buy 5 percent would effectively mean cancelling the IPO altogether, which is an unlikely outcome, one of the sources said.
Sources said postponing the listing would be the least preferred option, given the preparations that have been already done and the determination of Prince Mohammed, who is expected to be the next king, to proceed with the listing.
Two sources told Reuters that sovereign wealth funds from South Korea and Japan, which are also major buyers of Saudi oil, were also interested in acquiring a stake in Aramco.
One of the sources said Russia's sovereign wealth fund RDIF was 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, according to industry sources.
That would fit in with a push by the world's top oil exporter to regain its dominance in supplying China, the world's second-largest oil consumer after the United States, having lost the upper hand to Russia this year.
Saudi Energy Minister Khalid al-Falih said in August that he expected to finalise a deal with PetroChina early next year to invest in the Yunnan oil refinery in China's southwest that started operations in July.
Such a move would help Aramco secure a share of crude supply starting in 2018 to the plant, which processes 260,000 barrels of oil a day (bpd).
Talks are focusing on finalising the size of the investment and getting final approval from Aramco's board for thevaluation of the Yunnan venture, industry sources said.
Saudi exports could also receive a boost through a separate supply pact with the state-run China National Offshore Oil Corp which is starting a new 200,000 (bpd) plant in southern China.