Saudi’s Sipchem, Sahara to seek deals in US and Asia after merger

Saleh M. Bahamdan (R), Chief Executive Officer of Sahara Petrochemicals, shakes hands with Abdullah Al-Saadoon, Chief Executive Officer of Sipchem, at the headquarters of Sipchem in Khobar, Saudi Arabia, May 12, 2019. (File/Reuters)
Updated 14 May 2019
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Saudi’s Sipchem, Sahara to seek deals in US and Asia after merger

  • The new entity will have combined assets worth more than $5.9 bn, ranking 2nd after SABIC
  • Growth opportunities will be evaluated and prioritized after the combined entity’s management and board are appointed

KHOBAR, Saudi Arabia: 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 US 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 optimising cost,” said Saadoon.
The synergies will start in the first year of completing the deal and will be fully realized 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.


British Steel collapses, threatening thousands of jobs

Updated 3 min 51 sec ago
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British Steel collapses, threatening thousands of jobs

LONDON: British Steel Ltd. has been ordered into liquidation as it struggles with industry-wide troubles and Brexit, threatening 5,000 workers and another 20,000 jobs in the supply chain.
The company had asked for a package of support to tackle issues related to Britain’s pending departure from the European Union. Talks with the government failed to secure a bailout, and the Insolvency Service announced the liquidation on Wednesday.
“The immediate priority following my appointment as liquidator of British Steel is to continue safe operation of the site,” said David Chapman, the official receiver, referring to the Scunthorpe plant in northeast England.
The company will continue to trade and supply its customers while Chapman considers options for the business. A team from financial firm EY will work with the receiver and all parties to “secure a solution.”
“To this end they have commenced a sale process to identify a purchaser for the businesses,” EY said in a statement.
The government said it had done all it could for the company, including providing a 120 million pound ($152 million) bridging facility to help meet emission trading compliance costs. Going further would not be lawful as it could be considered illegal state aid, Business Secretary Greg Clark said.
“I have been advised that it would be unlawful to provide a guarantee or loan on the terms of any proposals that the company or any other party has made,” he said.
Unions had called for the government to nationalize the business, but the government demurred.
The opposition Labour Party’s deputy leader, Tom Watson described the news as “devastating.”
“It is testament to the government’s industrial policy vacuum, and the farce of its failed Brexit,” he said in a tweet.
The crisis underscores the anxieties of British manufacturers, who have been demanding clarity around plans for Britain’s departure from the EU. Longstanding issues such as uncompetitive electricity prices also continue to deter investment in UK manufacturing, said Gareth Stace, the director-general of UK Steel, the trade association of the industry.
“Many of our challenges are far from unique to steel — the whole manufacturing sector is crying out for certainty over Brexit,” Stace said. “Unable to decipher the trading relationship the UK will have with its biggest market in just five months’ time, planning and decision making has become nightmarish in its complexity.”
Greybull Capital, which bought British Steel in 2016 for a nominal sum, said turning around the company was always going to be a challenge. It praised the trade union and management team, but said Brexit-related issues proved to be insurmountable.
“We are grateful to all those who supported British Steel on the attempted journey to resurrect this vital part of British industry,” it said in a statement.