Bahri, the National Shipping Company of Saudi Arabia, will take over ownership of the fleet of the Saudi Arabian Oil Co., now operated by the oil company’s subsidiary Vela in a deal said to be worth $1.3 billion.
The companies signed a memorandum of understanding in June to combine their fleets and the boards of both companies agreed to it last week. The deal is expected to be completed in November, but is subject to approvals by regulators and Bahri shareholders.
Vela plans to transfer to Bahri ownership of its entire fleet, which includes 14 very large crude carriers (VLCCs), a floating storage VLCC, one Aframax tanker, and four product tankers. In addition, Vela’s 800 seafarers and a number of its 120 shore staff will transfer to Bahri, which currently employs about 1,466 seafarers and 340 shore staff globally.
Before the merger, Bhari had a fleet of 17 VLCCs, 22 chemical tankers and four roll-on/roll-off ships, in addition to five dry bulk carriers, three chemical tankers and six multi-purpose general cargo ships that are under construction. The ro/ro vessels are used in a service that connects the East and Gulf Coast of North America with the Middle East, Mediterranean and Southeast Asia.
Under a 10-year contract, Bahri will become the exclusive provider of VLCC shipping services to Saudi Aramco for crude oil sold on a delivered basis. Saudi Aramco will continue to manage all crude oil marketing and sales directly with its customers. Vela currently manages the world's largest VLCC crude-oil transportation system,
using the equivalent of more than 50 VLCCs on a full-time basis in
support of Saudi Aramco.
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, starting Jan. 1, until the long-term shipping contract becomes effective pursuant to the terms of the transaction agreements.
Bahri will pay 4.875 billion Saudi Riyal ($1.3 billion) to Vela-- 3.1 billion Saudi Riyal in cash and 78.75 million new Bahri shares which will represent a 20 percent holding in Bahri.
Bahri is considering raising the cash consideration through debt financing from a number of sources.
The company said the deal was a "transformational step” because it “significantly expands Bahri’s business, provides it with a stronger financial and commercial position and enhances its position as a global marine transport leader.
“The transaction enables Bahri to become a national shipping champion that can achieve Bahri and Saudi Aramco’s aspirations to localize and develop a strong national maritime industry and will put Bahri in a position to support the kingdom’s growing petroleum, chemical and manufacturing industries, and provide greater security in marine transportation,” the company added.
Bahri is a joint stock company listed on Tadawul, the stock exchange of Saudi Arabia. A presentation on the company's Website explained that at the end of March a public investment fund owned 28 percent of the shares and 72 percent were free float. - Chris Dupin