Saudi Basic Industries Corporation, the region’s largest chemicals company, has increased its stake in Arrazi Methanol Company after purchasing Japan Saudi Arabia Methanol Company's 50 per cent interest for $150 million.
Sabic and JSMC’s holdings in the methanol company located in the eastern industrial city of Jubail will now be 75 per cent and 25 per cent respectively, Sabic said on Wednesday in a filing on Tadawul, where its shares are listed.
The deal comes after the two companies' joint venture agreement expired on 29 November, giving Sabic the right to purchase JSMC’s 50 per cent share in Arrazi.
Saudi Aramco, the world's biggest oil producing company, is in talks to buy a 70 per cent stake in Sabic, the kingdom's largest listed company. Arrazi is a massive methanol production facility with five million tonnes in annual production.
The Japanese company will pay $1.35 billion to Sabic for the extension of the joint venture for 20 years, it added.“Sabic will use some or all of the above proceeds to finance the refurbishment of or replacement of Arrazi’s existing methanol plants,” the company said.
The agreement will allow Sabic to become “an equal co-owner” using a new, more efficient methanol production technology to be commercialised.
JSMC will have the rights to sell its remaining 25 per cent stake in Arrazi prior to March 31, 2019 to Sabic.
The transaction is expected to be complete in 2019 and is subject to regulatory approvals.
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The deal was “highly favourable” to Sabic, said Cairo-based investment bank EFG-Hermes in a note.
"Overall, we view the deal as highly accretive and believe that buying out their foreign partners is an ideal way for the company [Sabic] to grow its bottom line gradually at minimal cost,” the bank said in a note.
Investing in chemicals has become an increasingly top priority for oil producing states in the region, with Sabic in particular looking to leverage the country's hydrocarbon resources for the production of specialty chemicals.
Revenue from the chemicals sector in the region rose 17 per cent year-on-year to reach $84.2 billion in 2017, as national oil companies added capacity and investment into growing their downstream sectors, according to a report by the Gulf Petrochemicals and Chemicals Association.
The growth rate was “the fastest since 2011”, the report said.
Sabic is investing heavily in new schemes such as oil to chemicals, and is currently undertaking a study on a $20bn project with Saudi Aramco on the country’s eastern coast.
In October, Sabic posted a 5.4 per cent increase in third-quarter net profit due to higher average selling prices and an increase in sales volumes, beating analysts’ estimates.
Net profit after zakat and tax increased to 6.1 billion Saudi riyals (Dh5.97bn) from 5.8bn riyals in the year earlier period.
