An Abu Dhabi sovereign wealth fund may join a group investing in Saudi Aramco's oil pipelines, in a deal set to be backed by a loan of around $10.5 billion.
Mubadala Investment Co., Abu Dhabi, a sovereign wealth fund with $232 billion of assets, is in talks with U.S. investor EIG Global Energy Partners, the lead member of the consortium, according to a Mubadala spokesperson.
Aramco has helped put together the loan, which the group will use to fund the transaction, according to other people familiar with the matter. BNP Paribas, Citigroup, HSBC Holdings and Mizuho Financial Group are among the lenders, said the people. All four banks declined to comment.
Washington-based EIG and Aramco, the world's largest oil company, announced the $12.4 billion deal late April 9. The investors will buy 49% of Aramco Oil Pipelines Co., a recently-formed entity with rights to 25 years of tariff payments for crude shipped through the Saudi Arabian firm's network. Aramco will own the rest of the shares and retain full ownership of the pipelines themselves.
The transaction is part of Saudi Arabia's drive to open up more to foreign investment and use the money to diversify its economy, which was hammered last year by coronavirus lockdowns and the fall in oil prices.
The disposal may also help Aramco reduce its debt and maintain its dividend, the biggest of any listed firm globally. The company — 98% owned by the Saudi government — paid out $75 billion to shareholders for 2020.
The deal is structured similarly to one last year involving Abu Dhabi National Oil Co. In June, Adnoc raised $10.1 billion by selling leasing rights over its natural-gas pipelines to a group including Global Infrastructure Partners and Singapore's sovereign wealth fund, GIC. GIC has an estimated $400 billion in assets.
HSBC advised EIG on the Aramco acquisition, one of the largest this year in the energy sector. Apollo Global Management, Brookfield Asset Management and BlackRock were among the other investors that made or considered bids.
Mubadala is the second-biggest wealth fund in the United Arab Emirates, of which Abu Dhabi is the capital.
The transaction covers all of Aramco's existing and future pipelines in the kingdom, according to EIG. The company's vast network includes the East-West Pipeline, which can carry more than 5 million barrels of crude a day from Saudi Arabia's main fields in the east to Yanbu on the Red Sea.
EIG described it as a "lease and lease-back agreement." Aramco will lease usage rights for its pipelines to the new subsidiary, which will then give Aramco the exclusive right to use the network for the 25-year period in exchange for a quarterly, volume-based tariff. Aramco will retain all operating and capital expense risk, EIG said.