The National Shipping Company of Saudi Arabia, known as Bahri, and Saudi Aramco yesterday agreed to merge their merchant fleets in a US$1.3 billion (Dh4.77bn) deal.
The move willcreate the world's fourth-largest tanker operator.
Under a non-binding memorandum of understanding (MOU) both companies will work towards incorporating the ships, workforce and business systems of Vela International Marine, a wholly owned subsidiary of Saudi Aramco, into the Bahri corporate structure.
Both sides are working to have a definitive agreement by the fourth quarter, with a view to completing the transaction next year.
The new company will have 77 vessels in its fleet, which will number 32 of the largest class of tankers - VLCCs (very large crude carriers), 20 chemical tankers, five product tankers and four roll-on roll-off ships. The company will also have 16 vessels under construction.
The deal will make Bahri the fourth-largest owner of VLCCs globally, after Norway's Frontline, and Japan's MOL and NYK. Under the deal, Bahri will provide transport services to Saudi Aramco on commercial terms, leaving the company to continue managing the country's crude oil marketing and sales directly with its customers.
"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," said Saudi Aramco's president and chief executive, Khalid Al Falih.
"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," he added.
"This is a transformational step for Bahri to strengthen its strategic partnership with Saudi Aramco and offers expanded future growth opportunities to create long-term value for our shareholders," said Bahri's chairman Abdullah Al Rubaian.
Under the terms of the transaction, Bahri would pay Vela a total consideration of about $1.3bn made up of a cash payment of $832.75 million in addition to 78.75 million new Bahri shares to be issued to Vela at an agreed price of $5.93 per share, representing a 20 per cent shareholding in Bahri.
The company is considering raising the cash consideration through debt financing from a number of sources.
It has appointed JPMorgan Capital Saudi Arabia as a financial adviser for this transaction, while Aramco has appointed HSBC Saudi Arabia as its adviser.
The proposed transaction is subject to a number of conditions and regulatory approvals, including completion of satisfactory legal, financial and technical due diligence, negotiation and agreement on the terms of the definitive transaction documents, approval of the transaction and related capital increase by Bahri's shareholders and obtaining regulatory approvals.
Bahri, which employs 1,322 seafarers and 332 shore staff globally, is a joint stock company listed on the Tadawul, Saudi Arabia's stock exchange.
Vela International Marine manages the world's largest VLCC crude-oil transport system, using more than 50 VLCCs on full-time charter as well as its own fleet of 14 VLCCs to support Saudi Aramco's crude transport requirements worldwide.
Vela employs about 800 seafarers and 150 shore staff.
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