By Yuka Obayashi and Yousef Saba
TOKYO/DUBAI (Reuters) -Saudi Aramco will buy from Japan's Sumitomo Chemical a 22.5% stake in their petrochemical joint venture Petro Rabigh for $702 million, the companies said on Wednesday, outlining a turnaround strategy for the loss-making firm.
Under the deal, Aramco and Sumitomo Chemical will each provide $702 million in funding to Petro Rabigh and waive loans worth a total $1.5 billion, the statement said.
Petro Rabigh had accumulated losses totalling 8.871 billion riyals ($2.36 billion) by the end of June, which was equivalent to over 53% of its share capital, it said on Wednesday.
The Aramco-Sumitomo deal explores a remedial plan as Petro Rabigh looks to abide by Saudi law, which says that if a joint-stock company's losses are half its issued capital, it must announce them and make recommendations within 60 days.
An extraordinary general assembly meeting must also be called within 180 days to either take steps to resolve the losses or dissolve the company.
Petro Rabigh's board was notified of the accumulated losses on Tuesday, it said in a filing on its second-quarter results.
The losses were mainly due to "unfavorable market conditions which resulted in lower or negative margins of the refined and petrochemical products" and higher finance costs due to an increase in interest rates, the company said.
The deal shrinks Sumitomo Chemical's stake in the joint venture to 15% while increasing Aramco's share to 60%.
The sale aligns with Aramco's downstream expansion and Sumitomo Chemical's move away from commodity chemicals toward speciality chemicals, they added.
Sumitomo Chemical plans to book a pre-tax loss of 27 billion yen ($183 million) in the July-September quarter as a result of the deal, the company said in a separate statement, adding that it is sticking to its annual profit forecast it announced in April.
($1 = 147.5000 yen)
($1 = 3.7545 riyals)
(Reporting by Yuka Obayashi in Tokyo and Yousef Saba in Dubai; editing by Miral Fahmy)
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