May 14, 2019 / 1:17 PM / 11 days ago

Exclusive: Saudi's Sipchem, Sahara to seek deals in U.S. and Asia after merger

KHOBAR, Saudi Arabia (Reuters) - Saudi International Petrochemical Co (Sipchem) and Sahara Petrochemical plan to target acquisitions and joint ventures in the United States and Asia when their merger is completed in order to expand market reach, top executives said.

The new entity, Sahara International Petrochemical Company, will have combined assets worth more than 22 billion riyals ($5.9 billion), ranking second after the kingdom’s biggest petrochemicals firm, Saudi Basic Industries (SABIC).

“Combining Sipchem and Sahara will create an integrated petrochemical leader with an improved competitive position in Saudi Arabia and globally,” said Sahara CEO Saleh Bahamdan, who will also be CEO of the new entity.

“We are looking at opportunities in Asia and U.S. markets for either acquisition or organic growth, JVs, and locally we are also exploring,” said Sipchem CEO Abdullah Al-Saadoon, who will be the new company’s chief operating officer.

Growth opportunities will be evaluated and prioritized after the combined entity’s management and board are appointed, both executives told Reuters in an interview, without giving further details.

Shareholders of the two firms will hold separate meetings on May 16 to vote on the merger in the last step before completion.

The duo called off a tie-up in 2014, citing an inadequate regulatory framework, but revived it in 2018 as consolidation gained momentum in the Saudi corporate sector as part of the government’s Vision 2030 drive to diversify the economy and boost the private sector to create jobs for a young population.

“The transaction comes in line with Vision 2030 goals to build national companies with strong local and international reach in a sector that has been identified as a priority for the future Saudi economy,” said Bahamdan.

The petrochemical sector, which produces chemicals using oil and natural gas as raw materials, is the backbone of the kingdom’s manufacturing sector. Its flagship is SABIC, the world’s fourth largest petrochemical firm, the majority of which was recently acquired by Saudi oil giant Aramco.

Sahara produces basic petrochemicals while Sipchem focuses on more high-value products. The tie-up will expand their product portfolio, increase purchasing power and reduce raw material costs, boosting competitiveness and sustainability. “The merger between Sipchem and Sahara is expected to create synergies of 175-225 million riyals in recurrent EBITDA (earnings before interest, tax, depreciation and amortization) annually, coming from increased revenue and also optimizing cost,” said Saadoon. The synergies will start in the first year of completing the deal and will be fully realised in three years, Bahamdan said.

The two companies will have a shared services structure, including human resources, IT, finance, maintenance and technical services.

They will also have increased scale for procurement and boost cross-selling through 24 companies and affiliates offering 30 distinct petrochemical products, Bahamdan added.

Both Sipchem and Sahara have the Zamil Group, one of the kingdom’s most prominent family businesses, as a significant shareholder, along with the Saudi Arabian government.

Reporting by Marwa Rashad; Editing by Saeed Azhar and Mark Potter

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