RIYADH, Sept 21 (NNN-SPA) – Saudi Industrial Investment Group (SIIG) and National Petrochemical Company (Petrochem), started merger talks, which may create a new entity with 35.6 billion riyals (9.49 billion usd) in assets.
The SIIG board gave the nod to begin discussions about a potential transaction at its meeting on Sept 17, the company said in a statement, to the Tadawul stock exchange, where its shares trade. SIIG already controls a 50 percent stake in Petrochem.
Talks to “study the economic feasibility of merging the two companies” are at an early stage, SIIG said.
The tie-up “makes a lot of sense with what is going on with the pandemic and demand decline … regionally and globally,” Nabil Rantisi, general manager for wealth management at Dubai-based Daman Investments, said.
“It is very much needed not only to increase efficiency,” he said. “For some companies [in the industry it’s a] survival issue. We all know the demand hasn’t come back to what it was pre-pandemic.”
Anagreement has yet to be reached on the final structure of the potential deal, SIIG said.
“We think this merger, it’s more of a swap,” Mazen Al Sudairi, head of research at Al Rajhi Capital in Riyadh, said of the possible structure of the transaction.
“SIIG already owns [half of] Petrochem but they don’t have full control. They want to be 100 percent shareholders,” he added.
Shares of Petrochem yesterday climbed 6.78 percent and SIIG ended trade with 5.48 percent gain.
Petrochemical producers in the Middle East are increasingly looking to consolidate in a bid to gain scale, as they face difficult market conditions. Profits are also under pressure amid a slump in prices and demand for their products.
Last year, Saudi International Petrochemical Company (Sipchem) completed its buyout of the Saudi Sahara Petrochemical in a multi-billion dollar deal. Saudi Aramco, the world’s biggest oil producing company, also took a majority stake in the Middle East’s biggest petrochemicals producer, Saudi Basic Industries Corporation in 2019. The $69.1bn (Dh253bn) deal was completed in June this year.
The COVID-19 pandemic, which disrupted global supply chains and tipped the world economy into a recession, has increased pressure on petrochemical producers. Overall demand for petrochemicals shrank seven percent between Dec, 2019 and Apr, 2020, according to the industry tracker ICIS. Over a full year period, demand will contract as much as 10 percent on average, as a result of the pandemic, according to Boston Consulting Group.
A rise in demand for medical and personal care products has helped parts of the petrochemical industry, however, producers associated with sectors hit harder by the pandemic, such as construction and automotive industries, are struggling, S&P Global Platts said in its latest petrochemicals sector outlook report.
As the industry moves into the second half of 2020, renewed movement restrictions and a prolonged economic recession paint a “far from clear-cut” picture, according to S&P Global Platts.
SIIG, which has been trading on Tadawul since 2004, has 4.5bn riyals of paid-up capital. It also owns a 50 percent stake in both Saudi Chevron Phillips Company and Jubail Chevron Phillips Company.
Petrochem, which is based in Riyadh, has paid-up capital of 4.8bn riyals. The company owns a 65 percent stake in Saudi Polymers, which produces petrochemical products.– NNN-SPA
