Liquidity drive pushes Aramco out of USD 7 bn Malaysian partnership

Aramco is checking out of Malaysia: Saudi Aramco is offloading its 50% stake in Malaysia’s refining and petrochemicals joint venture PRefChem to partner Petronas, according to Aramco’s official statement. The Malaysian state energy firm will now own the JV in full, ending an 20-year downstream partnership in Southeast Asia.

PRefChem? It's a pair of JVs, Pengerang Refining Company and Pengerang Petrochemical Company, that run an integrated refinery and petchem complex in Pengerang, in Malaysia's southern Johor state. The refinery handles around 300k barrels a day, turning out jet fuel, gasoline and diesel, and feeds a petrochemicals plant with a nameplate capacity of roughly 3.4 mn tonnes a year.

BACKGROUND- Aramco bought in back in 2017, agreeing to put up USD 7 bn for a 50% stake, in a share purchase agreement signed during King Salman’s state visit to Malaysia. It was one of the oil giant’s biggest overseas downstream wagers at the time, with both JVs formally running by March 2018.

The official line: Aramco is framing the exit as a tidy-up of its downstream portfolio that frees up room to chase investments better suited to its strategy, according to its statement. Petronas says full control hands it more operational flexibility across its supply chain. The two add that they'll keep exploring ways to work together on crude supply, technology and product distribution.

This move comes as the war continues to drag on Asian energy market supply, with the closure of the Strait of Hormuz cutting off a chunk of the Gulf’s oil production that PRefChem relied on. This deal now allows Petronas to source non-Gulf energy and capture high regional fuel margins as well, Reuters reports. Aramco had been covering 50-70% of the complex's crude feedstock, but its own output fell by about a third in April versus pre-war levels.

Part of a trend? The move implies Aramco is ramping up its asset-monetization strategy, as it has been seeking to free up capital and intensify its efforts to unlock liquidity even before the war ignited.

ICYMI- Aramco is reportedly lining up asset sales in a privatization drive that could fetch as much as USD 35 bn in total, with the oil giant wanting to keep full control of its upstream business but willing to part with minority stakes in midstream and downstream assets.

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