Saudi Arabia’s Safco agrees to buy Sabic's agri-nutrients arm for Dh4.5bn

Share swap deal will give Sabic a majority stake in the enlarged fertiliser business

FILE PHOTO: A man walks past the headquarters of Saudi Basic Industries Corp (SABIC) in Riyadh, Saudi Arabia October 27, 2013. REUTERS/Faisal Al Nasser/File Photo
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The Saudi Arabian Fertiliser Company (Safco) agreed to buy a unit of Saudi Basic Industries Corporation (Sabic) to boost growth and look for new opportunities, the company said on Wednesday.

Safco will acquire 100 per cent of Sabic Agri Nutrients Investment Company, which is valued at 4.59 billion Saudi riyals (Dh4.49bn) by way of an increase in share capital and an issuance of shares to Sabic, according to a statement on Tadawul, where the company’s shares trade.

“This agreement comes as a result of the shared vision by Sabic and Safco, to enhance and improve efficiencies through consolidation and realisation of synergies,” Safco said.

“It also envisages considerable opportunities for growth and development of competitive advantages in the global marketplace, which serve Safco’s interests and enhances the rights of its shareholders.”

Sabic has a stake of 42.99 per cent in Safco, with the remaining 57.01 per cent held by the private sector and public. Following the acquisition of the nutrients business and the issue of new shares, Sabic's stake in Safco will go up to 50.1 per cent, whereas existing shareholders' ownership will be diluted to 49.9 per cent.

The parties agreed not to include Sabic’s share in both Ma’aden Phosphate Company and Ma’aden Wa’ad Al Shamal Phosphate Company in this deal, the statement said.

In a note on the deal issued on Wednesday, analysts from EFG Hermes said the transaction "makes a lot of sense from a structural perspective as this would consolidate all the agri-nutrient investments [excluding Ma'aden] under Safco, allowing Safco to focus on this business and add value to it, while Sabic can focus on its petrochemicals and speciality business".

"Overall, we suspect Safco got a good deal based on the numbers we do have, but we are unlikely to know for sure until both companies release more information," EFG's analysts said.

Safco, established in 1965, was the first petrochemical company in Saudi Arabia producing urea and ammonia. The company reported a total comprehensive income of 246.2 million riyals during the third quarter, down from 487.98m riyals in the same period last year, largely due to a reduction in both quantities sold and selling prices.

Sabic, on the other hand, reported an 86 per cent decline in third-quarter income after writing down the value of its investment in Swiss chemicals giant Clariant.

The company reported a net profit of 830m riyals for the three months to September 30, down from 6.1bn riyals in the same period last year. Revenue for the period dropped 23 per cent to 33.69bn riyals as oil prices fell, which had a knock-on effect on petrochemicals prices.