Saudi Arabia’s Sipchem and Sahara reach agreement on petchems merger

Saudi International Petrochemical Company, or Sipchem, signed a non-binding agreement to buy Sahara Petrochemicals Company in a deal valued at 8.25 billion riyals (Dh8.1bn) four years after merger talks stalled.

Sipchem will make an offer to buy all of Sahara’s shares and each Sahara shareholder will receive 0.8356 new Sipchem shares, the companies said on yesterday in statements to the Saudi stock exchange. Sipchem and Sahara are working to enter a binding agreement by February 28.

The merger would help in “increasing scale and resilience in the evolving petrochemicals sector, both in the kingdom and internationally”, the companies said.

The agreement comes after the two companies called off talks for a planned tie-up in 2014, citing an inadequate regulatory framework.

The Capital Market Authority, Saudi Arabia’s markets regulator, has since introduced laws to facilitate mergers and acquisitions activity. The proposed merger comes as consolidation gains momentum in the Saudi corporate sector, most recently with Saudi Aramco expressing interest in buying a stake in petrochems maker Sabic.

The deal between Sipchem and Sahara is valued at 8.25bn riyals as per Tuesday’s closing share price.

A potential deal would benefit the companies with cost synergies, stronger product portfolio, better access to capital markets and a broader feedstock supply, according to the statements.

“The proposed transaction is expected to provide synergy potential, from both a revenue and cost perspective, which is expected to drive value for shareholders,” the companies said.

Shares in Sipchem rose 0.7 per cent at the market close in Riyadh yesterday, while Sahara shares rose 3.9 per cent. Sipchem hired HSBC Saudi Arabia as its financial adviser and Khoshaim & Associates and Allen & Overy as its legal advisers.

Sahara appointed Morgan Stanley Saudi Arabia as its financial advisor and Abuhimed Alsheikh Alhagbani Law Firm and Clifford Chance as its legal advisor.

The proposed stake sale of Sabic, the region’s biggest chemicals manufacturer, to the world’s top oil producing company Saudi Aramco is expected to set into motion more consolidation in the regional industry, according to analysts.

Petchems contributed to about $43.8bn (Dh161bn) to GCC economies in 2016 alone, according to the Gulf Petrochemicals and Chemicals Association, the sector’s regional representative body.

Development of petchem projects has accelerated across the GCC over the past couple of years as national oil companies fine-tune plans to generate more value from their crude grades.