A view of Hyundai Oilbank’s plant in Daesan, Chungcheongnam-do. (Photo: Hyundai Oilbank)

Saudi Aramco, a Saudi Arabian national petroleum and natural gas company, will become Hyundai Oilbank’s second-largest shareholder. Hyundai Heavy Industries (HHI) Group announced on Jan. 28 the group signed a pre-initial public offering (IPO) agreement with Saudi Armco’s investment on a stake worth 1.8 trillion won.

The deal calls for Saudi Aramco to purchase Hyundai Oilbank shares at 36,000 won per share based on the assumption the Korean oil petroleum and refinery company’s capitalization stands at 10 trillion won. HHI Holdings, the holding company of HHI Group, now owns a 91.13 percent stake in Hyundai Oilbank. Saudi Aramco’s acquisition of Hyundai Oilbank shares will lower HHI Group’s stake in the Korean refinery company to 71 percent.

But Saudi Aramco will not participate in management of Hyundai Oilbank, HHI Group said. HHI Holdings’s handing over Hyundai Oilbank shares to Saudi Aramco is expected to help HHI Holdings improve its financial situation. The funds raised from Saudi Aramco’s investment will be used to explore new businesses.

HHI Group and Saudi Aramco are scheduled to sign the deal officially in February after each company approves it.

HHI Holdings will likely secure somewhere between 1.5 trillion won and 2 trillion won by selling off Hyundai Oailbank shares. Initially, HHI Holdings planned to raise 2 trillion won by disposing of a 30 percent stake in Hyundai Oilbank through an IPO.

The agreement will allow HHI Holdings to attract the world’s largest oil company as a strategic partner while the holding company will have another chance of attracting large amounts of investments via an IPO of Hyundai Oilbank, an investment bank official said.
Saudi Aramco’s evaluation of Hyundai Oilbank’s capitalization at around 10 trillion won will be used as a measure of evaluating the Korean refinery company’s remaining stake in the process of the upcoming IPO, he added. The Korean refinery market has big four refinery companies – SK Innovation, GS Caltex, Hyundai Oilbank and S-Oil.

Some industry analysts said that by becoming the second largest shareholder of Hyundai Oilbank, Saudi Aramco’s is a surprise. But given Saudi Aramco’s continued expansion of its presence in the Korean refinery and petrochemical market, the deal should not come as an unexpected move, many analysts said.

In 1991, Saudi Aramco entered Korea by acquiring Ssangyong Refinery, the predecessor of S-Oil. The Saudi oil company took over an additional 28.4 percent share in S-Oil for 2.2 trillion won from Hanjin Group in 2014.

Saudi Aramco has invested a combined more than 7 trillion won into the Korean market, including 5 trillion won used for building a propylene oxide plant in Onsan. In 2015, Saudi Aramco once failed to materialize an attempt to buy up GS Caltex to expand its share in the Korean market. The Saudi oil company has continued to try to invest into Korean refineries since the botched attempt in 2015 and it has achieved it through a stake investment into Hyundai Oilbank, he added.

Saudi Aramco, which has S-Oil as a subsidiary, has a deep understanding of the Korean refinery business. The Saudi company is believed to highly appreciate the investment value of Hyundai Oilbank, which has Korea’s highest upgrade rate of 40.6 percent capable of producing value-added products.

Saudi Aramco has maintained close strategic partnerships with HHI Group as the two companies signed an MOU on a strategic alliance and established a joint shipyard and a corporate entity related to joint ship engines, an HHI group official said.

The deal between HHI Holdings and Saudi Aramco is most likely to put on the hold Hyundai Oilbank’s IPO. HHI Group’s scheme to list the refinery unit on the bourse has been delayed from last year. The reason is that accounting audit has been strengthened in the wake of an alleged fraudulent accounting involving Samsung BioLogics.