(Bloomberg) — Saudi Arabia’s sovereign wealth fund is set to create a new steel giant by acquiring the metals unit of chemical maker Saudi Basic Industries Corporation (SABIC) for an enterprise value of 12.5 billion riyals ($3.3 billion).
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The Public Investment Fund will acquire the Saudi Iron and Steel Company from SABIC, as the chemical company is known. In a separate deal, SABIC’s steel unit will acquire Al-Rajhi Steel Industries in exchange for shares, according to a statement. The transaction is expected to close before the end of the first quarter of 2024, and the final sale price will not be finalized until after that.
SABIC shares rose 1.92% to a high of 90.1 riyals per share, before paring its gains.
The agreement is the latest sign of the growing influence of the Saudi wealth fund over the largest economy in the Arab world. The PIF is responsible for most of the country’s projects aimed at helping diversify away from dependence on oil sales, including the development of a car manufacturing hub, tourism projects and the construction of mega new cities.
“These deals will combine PIF’s financial capabilities and industry expertise with Steel and Al Rajhi Steel’s leading technical and commercial expertise, to create a national champion in the steel sector in Saudi Arabia,” said Yazid Al-Hamid, Deputy Governor of the Public Investment Fund and Head of the Middle East Region. and North African investments.
The Public Investment Fund, which is chaired by the kingdom’s de facto ruler, Crown Prince Mohammed bin Salman, previously owned 70% of SABIC before agreeing to sell the stake to state-controlled Saudi oil company Aramco in 2019. It closed its first major deal. in World Metals in July. Through the acquisition of a $2.6 billion stake in Vale SA’s base metals unit.
SABIC, the world’s most valuable chemical company, said the sale of Hadid would enable it to focus on its core business of producing petrochemicals. The chemicals maker struggled amid a weak global economy, reporting an 85% drop in profit in the second quarter.
Read more: World’s largest chemical company sees profits drop due to sluggish economy (1)
Hadid produced 5.2 million tons of steel in 2022, according to SABIC’s annual report.
Al-Rajhi Steel is owned by Mohammed Abdulaziz Al-Rajhi & Sons Investment Company.
(Updates on SABIC share price in the third paragraph.)
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