RIYADH - Saudi Arabia sought to raise billions through a historic Aramco IPO to remake its oil-dependent economy, but with those efforts floundering the state-owned giant is mulling what analysts call a risky Plan B.
The plan to float around five percent of Aramco -- expected to be the world's largest stock sale -- forms the cornerstone of a reform programme envisaged by Crown Prince Mohammed bin Salman to wean the economy off its reliance on oil.
But Aramco executives have repeatedly cited unfavourable market conditions to push back the IPO, earlier scheduled for this year, with many observers sceptical whether the listing will happen at all.
The oil giant is now mulling another approach to raise the billions of dollars it had hoped to reap from Aramco's flotation.
Aramco chief executive Amin Nasser last week confirmed preliminary talks to acquire a "strategic stake" in SABIC, the world's fourth largest petrochemicals company that is 70 percent owned by the government-run Public Investment Fund (PIF).
"A potential SABIC deal would affect the time frame for Aramco's initial public offering," Nasser told Al-Arabiya television, without elaborating.
Observers see the acquisition of a controlling stake from PIF as a complex alternative to raise much-needed cash for the kingdom's top sovereign wealth fund.
SABIC, Saudi Arabia's largest publicly listed company, has a market capitalisation of around $100 billion -- the same amount the kingdom had sought to raise from Aramco's IPO.
Karen Young, a scholar at the Arab Gulf States Institute in Washington, described the approach to raise money as "accounting gymnastics".
"Both Aramco and SABIC essentially are state owned, but on balance sheets they are separate entities," Young said.
"If Aramco buys a controlling stake in SABIC, it will put cash into the PIF and allow Aramco to claim an important asset which it can borrow against."
The PIF, which hopes to control more than $2 trillion by 2030, is involved in a host of big-ticket global investments -- from Uber to a planned $500 billion mega city in the kingdom's northwest.
It seeks cash to pivot the economy away from oil after foreign direct investment in Saudi Arabia plunged last year to a 14-year low, according to a UN body, a blow to Prince Mohammed's ambitious reforms.
"If liquidity is made available to PIF as a result of Aramco purchasing a 70 percent stake in SABIC, this may lead to a complete abandonment of Aramco's international or domestic IPO," tweeted Mohammed al-Sabban, former adviser to the petroleum ministry.
"The question here is how PIF is going to spend this huge sum."
But first to finance the acquisition of a strategic stake in SABIC, the largely debt-free Aramco is weighing tapping the international bond market for the first time, combined with bank loans, according to Bloomberg News.
Raising debt instead of selling shares to investors adds greater risk to Saudi Arabia's strategy to use the PIF to overhaul the economy, experts say.
Indecision and delays
Neither Aramco nor SABIC are enthusiastic about the deal, but the companies have "acquiesced under pressure" from the prince's advisers, the Wall Street Journal reported, citing executives.
The companies did not respond to requests for comment.
"I cannot see any good reason for Aramco to buy (a stake in) SABIC... It does not make the management of the two entities easier," Hossein Askari, a professor at George Washington University, said.
But proponents of the deal say Aramco, which has its own petrochemicals unit, could benefit from the synergy.
The purchase would allow Aramco to expand its petrochemical operations to make it a more integrated energy firm, as the kingdom's crown jewel prepares for a post-oil era.
The SABIC deal could boost Aramco's valuation and position it for a more successful IPO in the future, Saudi officials say.
London, New York and Hong Kong have all vied for a slice of the much-touted IPO.
But experts say Aramco's inability to generate a $2 trillion valuation sought by the crown prince and legal concerns that the IPO will invite unprecedented scrutiny to the company have prompted indecision and delays.
Inside the company, several key executives working on the project have been moved to other positions and preparations for the flotation appear to have slowed.
"If the SABIC deal proceeds it means, at minimum, that the Aramco IPO is further delayed," Ellen Wald, author of the book "Saudi Inc.", said.
"Aramco could be offering this purchase as a way to transfer cash to the PIF, appease the PIF and crown prince, and hope to avoid an IPO."