Finance Association, January 2 (Reporter Zhao Zixiang) An established domestic chemical leader has made another new move. This evening, Rongsheng Petrochemical (002493.SZ) announced that a wholly-owned subsidiary of the company plans to invest 67.5 billion yuan to build a new materials project in Jintang. On the same night, Rongsheng Petrochemical also announced that the company signed a memorandum of understanding with Saudi Aramco. According to the memorandum, the two sides are discussing matters such as Rongsheng Petrochemical (or its related party)'s intention to acquire 50% of Saudi Aramco Jubail Refining & Chemical Company (“SASREF”).

Rongsheng Petrochemical announced that in order to further extend the high-end chemical industry chain, Rongsheng New Materials (Zhoushan) Co., Ltd., a wholly-owned subsidiary of the company, plans to build more than 20 chemical plants, including 3 million tons/year catalytic cracking unit, 1 million tons/year gas separation unit, 600,000 tons/year aromatic hydrocarbon extraction combined unit, and 300,000 tons/year PEO plant, etc.

In terms of capital, according to estimates from the research report, the total investment of the project is estimated to be 67.5 billion yuan. The funding sources are the company's own capital and bank loans. After completion, the project can achieve an average annual revenue of 86.877 billion yuan and an annual net profit of 15.463 billion yuan. Among them, the financial internal rate of return of the project after tax was 24.81%, and the payback period after tax was 6.11 years (including the construction period of 3 years).

Rongsheng Petrochemical announced that the investment is a positive measure to promote innovation and development in the petrochemical industry, is in line with national and company strategic development plans, and has positive significance for the company's long-term development. The company will invest capital in installments according to the specific schedule requirements of the project, and will not adversely affect the company's financial situation and operating results.

Meanwhile, Rongsheng Petrochemical also issued another announcement on the same night. The company signed a “Memorandum of Understanding” with Saudi Aramco on January 2, which became another joint cooperation after signing the “Equity Sale Agreement” in March last year.

According to the memorandum, the two sides are discussing Rongsheng Petrochemical (or its affiliates) to acquire 50% of Saudi Aramco's Jubail Refining & Chemical Company and plan to increase production capacity and improve product flexibility, complexity and quality through expansion.

At the same time, the two sides are also discussing the potential acquisition of no more than 50% of the shares of Ningbo Zhongjin Petrochemical Co., Ltd. by Saudi Aramco (or its affiliates), and is jointly developing the upgrade and expansion of CICC's existing installations and the development of a new downstream Rongsheng New Materials (Zhoushan) project.

A CFA reporter noticed that the memorandum has now been reviewed and approved by the 16th meeting of the 6th board of directors of Rongsheng Petrochemical, and there is no need to submit it to the shareholders' meeting for consideration. Meanwhile, the final investment decisions of Rongsheng Petrochemical and Saudi Aramco will be made after the two sides have completed due diligence investigations on SASREF and CICC respectively.

Rongsheng Petrochemical's announcement also stated that before making a final investment decision, it is expected that no more than 14 million US dollars will be incurred in connection with Saudi Aramco due to the implementation of this Memorandum of Understanding.

According to public information, Rongsheng Petrochemical operates Zhejiang Petrochemical's 40 million ton integrated refining and chemical project, the world's largest single refining plant. It is an important producer of polyesters, new energy materials, engineering plastics and high-value-added polyolefins in China and Asia. It is the world's largest producer of PX, PTA and other chemicals. Production capacity in various products such as polyethylene, polypropylene, PET, EVA, ABS, and PC ranks among the highest in the world.

Saudi Aramco, on the other hand, is an integrated energy and chemical company. Its crude oil production accounts for about one-eighth of the world's production. At the same time, Saudi Aramco has also targeted its strategic layout in the field of new energy technology in recent years.

On March 27, 2023, the two sides signed a major strategic cooperation agreement. Through its wholly-owned subsidiary Aramco Overseas (AOC), Saudi Aramco acquired 10% of Rongsheng Petrochemical's shares for 24.6 billion yuan and traded at a price of 24.30 yuan/share per share. On July 21, Rongsheng Holding Group publicly disclosed that the strategic shareholding between its company Rongsheng Petrochemical and Saudi Aramco was officially completed.

However, in the risk analysis of the implementation of the Memorandum of Understanding, Rongsheng Petrochemical stated that this Memorandum of Understanding is a strategic and framework agreement between the two parties based on a desire to cooperate, and does not constitute a performance commitment. The company also stated that the two sides will further negotiate the cooperation agreement in the future. During the cooperation agreement negotiations and subsequent investment and construction process, there is a possibility that investment and construction conditions such as domestic and foreign markets, industrial policies, process technology, etc. will all change significantly. At the same time, there are various unforeseen factors or force majeure factors, which may cause the investment cooperation to fall short of expectations or may not be fulfilled.