Aramco to buy a 20% stake in Oilbank

Hyundai Oilbank will receive 1.8 trillion won ($1.6 billion) in investment from Aramco, Saudi Arabia’s state-run oil giant, in exchange for a roughly 20 percent stake in the company, Hyundai Heavy Industries Group announced on Monday.

The deal will make Aramco the second-largest stakeholder of Hyundai Oilbank, the No. 4 oil refiner in Korea. Hyundai Heavy Industries Group currently owns a 91.13 percent stake in the company.

On Monday, the two companies signed a pre-initial public offering (IPO) contract, a process by which a company sells a portion of shares to private investors ahead of an initial public offering. Aramco estimated Hyundai’s value at 10 trillion won and suggested it pay 36,000 won per share.

If the deal is finalized after the respective companies’ board of directors meetings, Aramco will obtain a 19.9 percent stake in Hyundai Oilbank while Hyundai Heavy Industries Group will have 70 percent. The board of directors meetings are likely to take place next month, said a Hyundai spokesperson.

“We need some time for the pre-IPO procedures to be finalized so the IPO of Hyundai Oilbank will inevitably have to be postponed,” said the spokesperson.

The pre-IPO contract with Aramco comes after an unsuccessful attempt in 2018 to take Hyundai Oilbank public.

In August, Hyundai Oilbank passed the preliminary screening to be approved by the Korea Exchange to embark on preparations for an IPO on the local stock market. But, accusations raised last year that Samsung BioLogics inflated its valuation ahead of its IPO raised the bar, prolonging the process for companies that had originally planned to go public that year. Hyundai Oilbank, one of the most anticipated IPO candidates of 2018, was among them.

For Hyundai Heavy Industries Group, the deal will provide them with cash earlier than if they had waited for the IPO.

“Capital raised from the deal is planned to be used for investments in new businesses and improving our financial structure,” the group said in a statement.

Also well known for its shipbuilding affiliate that ranks among the country’s top three, Hyundai Heavy Industries Group has been making efforts to restructure after shipbuilders hit rock bottom a few years ago. The Hyundai Oilbank IPO was expected to help the company improve its financial status.

One reason the group had been pushing for the public offering since last year was because the refining industry has been doing well for the last few years. But the market outlook for this year is grim, with oil prices falling and uncertainties in the global economy. An IPO when the industry is slumping would mean a low valuation and a lower share price.

For Aramco, Hyundai Oilbank will become the second local refiner in which it owns a large stake. A supplier of crude oil with 15 percent of the global market share, the Saudi oil giant is also the largest stakeholder in S-Oil, with 63.5 percent, Korea’s third-biggest refiner.

Hyundai Heavy Industries Group said in a statement that it has high hopes that “the investment of the world’s top oil company will further boost its corporate value and bring new opportunities as it joins Aramco’s global network.”

The two signed an agreement for strategic cooperation in November 2015 and are already working together to build the largest shipyard in Saudi Arabia.

Local analysts on Monday assessed that the announcement would help Hyundai Oilbank’s IPO; Aramco had suggested a valuation price higher than their projections at around 8 trillion won.

“Recently sluggish refining market conditions raised concerns over a potential delay or cancellation of the IPO [but] these concerns seem to have been quelled by the pre-IPO,” said analysts Jeong Dong-ik and Chang Moong-joon of KB Securities. “Moreover, the pre-IPO price could act as a reference point for a future IPO.”

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]