Monday, 22 October 2012

USD $1.3 billion deal to create Saudi shipping giant

Bahri, the National Shipping Company of Saudi Arabia (formerly known as NSCSA) announced last week that it had closed a USD $1.3 billion merger agreement with Saudi Arabian Oil Company (Saudi Aramco) and Vela International Marine Limited, a wholly owned subsidiary of Saudi Aramco; this deal will make the new conglomerate the world’s fourth largest owner of VLCCs. Saudi Aramco is the Saudi Arabian national oil and natural gas company based in Dhahran. It is said to have the largest proven crude oil reserves in the world.

All of Vela’s 14 VLCCs will be transferred to Bahri, as will a storage VLCC, an Aframax tanker and four product tankers. Bahri already owns 17 VLCCs, 22 chemical tankers, 4 ROROs, 5 dry bulk carriers, 3 chemical tankers and 6 multi-purpose general cargo ships, including those being built. 

“By creating a new global leader in shipping, Saudi Aramco hopes to build a strong company that can leverage its capabilities in the shipping sector and would meet its growing business portfolio. This company in turn will serve as a national champion that will promote the development of a thriving national maritime industry that creates jobs and other long-term opportunities for the Kingdom,” Saudi Aramco President and CEO Khalid Al-Falih announced.

Bahri has also believed to have signed a ten year contract with Saudi Aramco, under which it will become the exclusive provider of VLCC crude oil shipping services to that company, which will nevertheless manage its own marketing and sales. The two firms will also cooperate elsewhere in the maritime sector. Bahri and Saudi Aramco have appointed financial advisors for the agreement- JP Morgan and HSBC respectively.

As competitors struggle in the dismal market scenario, Bahri has been doing well; this move will make it further consolidate its position on the global stage. Its net profit for the first three quarters of the current calendar year has shot up a staggering 145% YOY already, and stands at SAR 427.4 million (SAR 174.5 million in the same period in 2011). Earnings per share (EPS) are up 247 per cent. 

From Vela’s point of view, too, the merger made sense. “Our long-term strategy is to create a global maritime leader with the commercial and financial strength to provide safe and reliable shipping services that meet Saudi Aramco’s long-term strategic needs,” Vela Chairman Khalid G. Al-Buainain said.

In June, Saudi Aramco and Bahri had jointly announced a non-binding memorandum of understanding (MOU) that would pursue a merger of the fleets and operations of Bahri and Vela International Marine Limited, a wholly owned subsidiary of Saudi Aramco, to create a large and diversified national shipping company. The clear intention, said analysts at the time, was to consolidate in trying times to form a company that would become the fourth-largest owner of VLCCs globally, and create a platform for the continued economic growth and human capital development for Saudi Arabia.

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