Saudi Arabia's SIIG and Petrochem in merger talks

Under the transaction plan, SIIG will acquire shares of Petrochem that it does not already own

An oil refinery in Saudi Arabia. Petrochemical producers in the Middle East have increasingly sought to consolidate over the past few years in an effort to gain scale. Getty Images

Saudi Industrial Investment Group (SIIG) signed a non-binding preliminary agreement with National Petrochemical Company (Petrochem) to assess the feasibility of a potential merger of the two companies.

The transaction will be implemented through a share exchange offer by SIIG to acquire shares of Petrochem that it does not already own, the companies said in separate statements on Tuesday to the Tadawul stock exchange, where their shares are traded. SIIG already controls a 50 per cent stake in Petrochem.

Petrochem's shareholders will receive 1.27 shares in SIIG in exchange for each share they own if the transaction is approved.

"It should be noted that the MoU does not constitute a binding agreement, as the implementation of the transaction is subject to the two companies agreeing on a final binding agreement that determines the terms and conditions of the transaction," SIIG said.

The final binding agreement is further subject to regulatory approvals, the companies said.

Petrochemical producers in the Middle East have increasingly sought to consolidate over the past few years in an effort to gain scale amid market headwinds. A fall in oil prices, reduced demand and the impact of the pandemic have further pressured bottom lines.

In 2019, Saudi International Petrochemical Company (Sipchem) fully acquired 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 the same year for $69.1bn.

SIIG and Petrochem had started merger talks last year in a bid to create a stronger entity with 35.6 billion Saudi riyals ($9.4bn) in assets.

If the deal with SIIG goes through, Petrochem's shares will be delisted from the Tadawul and the company will be a wholly owned unit of SIIG.

Petrochem appointed GIB Capital as its financial adviser, while HSBC is advising SIIG on the proposed transaction.

SIIG also owns a 50 per cent stake in both Saudi Chevron Phillips Company and Jubail Chevron Phillips Company.

Petrochem, which is based in Riyadh, has a 65 per cent stake in Saudi Polymers, which produces petrochemical products.