Saudi Arabian Shipping Giants Consolidate in $1.3 Billion Deal

On Saturday, The National Shipping Company of Saudi Arabia, Bahri, announced that it had closed a merger agreement worth upwards of USD $1.3 billion with Saudi Aramco and Vela International Marine Limited. The consolidation of these two companies will soon result in the world’s 4th largest owner of VLCCs globally.

Under the terms of the agreement, Vela will transfer to Bahri the ownership of its entire fleet, which consists of 14 VLCCs, a floating storage VLCC, one Aframax tanker, and four product tankers.

Post-transaction, the combined shipping businesses of Vela and Bahri will be integrated within Bahri’s corporate structure.

“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 said.

Bahri’s existing fleet consists of 17 VLCCs, 22 chemical tankers and 4 ROROs in addition to 5 dry bulk carriers, 3 chemical tankers and 6 multi-purpose general cargo ships that are under construction.

For Bahri’s already booming business, this merger signals a significant expansion of their business and provides it with an even stronger financial and commercial position within the global marine transport sector. While international competitors in the VLCC market have been struggling to keep the wheels on the bus over the past year, Bahri has seen significant growth. In fact, net profit for the first 9-months of 2012 totaled SAR 427.4 million compared to SAR 174.5 million for the corresponding period for the year 2011, an increase of 145%. Earnings per share during that same period are up 247 percent.

“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.

Pursuant to the terms of a long-term shipping contract, which has an initial term of 10 years, Bahri will become the exclusive provider of VLCC crude oil shipping services to Saudi Aramco for crude oil sold by Saudi Aramco on a delivered basis. Saudi Aramco will continue to manage all crude oil marketing and sales directly with its customers, and Bahri will provide reliable transportation services to Saudi Aramco. Furthermore, the two companies plan to explore ways to expand their cooperation in the maritime sector.

Bahri and Vela have also agreed to discuss terms of an interim arrangement to employ Bahri’s current VLCCs within Saudi Aramco’s existing crude oil VLCC transportation program. The interim arrangement is expected to take effect from January 1, 2013 until the long-term shipping contract becomes effective pursuant to the terms of the Transaction Agreements.

Bahri has appointed J.P. Morgan Saudi Arabia Limited as its financial adviser for the Transaction. Saudi Aramco has appointed HSBC Saudi Arabia Limited as its financial adviser for the Transaction.