Sipchem-Sahara merger plans revived

15 May 2016

Companies held early talks to explore options to created one integrated company

Saudi International Petrochemical Company (Sipchem) and Sahara Petrochemicals Company have revived merger plans two years after the first bid to merge the companies failed.

The companies have held early-stage talks on the merger which could create a petrochemicals firms with a market value of about $2.7bn, according to US-based news agency Bloomberg, which cited people with knowledge of the matter.

Preliminary talks between board members of both companies have taken place, however no agreement has been reached and a deal may not occur. HSBC is advising Sipchem and Morgan Stanley is advising Sahara. Both banks were involved in the previous talks, which broke down over an acceptable structure for the new firm, the companies had said at the time. Both companies had not completely ruled out the merger and said they would consider holding talks on the matter in the future.

The two petrochemicals producers’ merger would have created an integrated company with an estimated market capitalisation of $5.8bn. That value has more than halved now amid a slump in oil prices and slower economic growth that’s weighed on the Saudi Stock Market (Tadawul).

If the deal is successful, it would be the largest mergers and acquisition transaction in Saudi Arabia in at least a decade.

The two companies are facing rising costs as the government looks to cut spending and reduce subsidies. Sipchem said earlier this year it expects SR120m impact due to subsidies cuts in 2016, and Sahara said the reduction would increase its costs by 3 per cent.

Spokesmen for HSBC Saudi Arabia and Morgan Stanley declined to comment, and Sipchem and Sahara didn’t respond to calls and e-mails requesting comment by the news agency.

Sipchem is scheduled to start meeting qualified investors this month for a potential sukuk, which it plans to privately place solely with sophisticated investors, it said in a 28 March statement to Tadawul where its shares are traded. The company also plans an early redemption of a sukuk maturing in July this year and will use its available cash to pay it the outstanding amount, according to a 12 May statement.

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