Saudi petrochemicals firms SIIG, Petrochem start talks for potential merger

Saudi Arabian petrochemicals companies Saudi Industrial Investment Group (SIIG) and the National Petrochemical Company (Petrochem) have started initial discussions for a potential merger, both companies said on September 20. SIIG and Petrochem announced in separate statements that they have begun talks to study the “economic feasibility” of merging the two companies.

The companies stressed that the discussions are still in the initial stage and no agreement has yet been reached on the final structure of the potential deal. They noted that entering into this study does not necessarily mean that the deal will take place between the two parties. SIIG owns 50 per cent of Petrochem but reports suggest that the merger deal will be between near equals because both are similar in size.

“If the deal is agreed upon, this will be subjected to the conditions and approvals of the competent authorities, and the approval of the extraordinary general assembly of both companies,” said SIIG and Petrochem in separate statements, adding that they will announce any relevant developments as needed.

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Merger talks amid market strain

The merger would mark further consolidation in the petrochemicals sector of the Arab nation after Saudi Aramco bought a 70% stake in Saudi Basic Industries. While SIIG owns 50% of Petrochem, the latter has a higher market value with $3.7 billion market capitalisation and the two companies have combined assets of $9.5 billion as of June.

The discussion over potential merger comes at a time when energy companies in Gulf countries are under strain due to lower demand after the coronavirus outbreak. Saudi Aramco's net income plunged by 50 per cent in the first half of 2020, offering a glimpse into the impact of the coronavirus pandemic. The majority state-owned company's financial health is crucial to the stability of Saudi Arabia even as Crown Prince Mohammed bin Salman has been trying to diversify funds into non-energy industries like tourism and entertainment.

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(Representational Image: pixabay)