Saudi Arabian Oil Co.'s cash flow generation and net cash position could support new acquisitions that support vertical integration, even after the company's deal for a 70% stake in Saudi Basic Industries Corp. and reported negotiations for a slice of Reliance Industries Ltd.'s refining and petrochemicals business, Fitch Ratings said.
Fitch, in an Aug. 19 note, said it expects any future deals will be to build up Aramco's downstream and petrochemical businesses. And although Aramco could attract new debt, the rating agency expected any M&A to be funded with internal sources.
Despite lower oil prices, Saudi Aramco on Aug. 12 reported net income of $46.90 billion in the first half of 2019. Aramco has $52 billion of cash on hand, according to Fitch. Fitch expects Aramco's funds from operations adjusted net leverage will remain at or below 0.5x, significantly lower than Royal Dutch Shell PLC, Total SA and BP PLC.
"Aramco's strong cash flow generation capacity is the result of its very high level of production and low unit production costs and [capital expenditure]," Fitch said.
Fitch said Aramco's 70% stake acquisition in SABIC will diversify its cash flows and bring its vertical integration more in line with international peers. A potential deal for interest in India's Reliance Industries will fit into its strategy to secure long-term oil demand and enhance its vertical integration, Fitch said.
