(MENAFN - Arab News) Vela International Marine Limited, a subsidiary of Saudi Arabian Oil Company, signed a landmark merger agreement with the National Shipping Company of Saudi (Bahri), resulting in the creation of one of the world's largest shipping companies.
The signing of the agreement was held Sunday and attended by executive officials of both parties including Khalid A. Al-Falih, president and chief executive officer of Aramco; Abdullah Sulaiman Al-Rubaian, Bahri chairman; Saleh Al-Jasser, Bahri chief executive officer; and Khalid G. Al-Buainain, senior vice president, engineering, capital and operations support.
Bahri financial advisers JP Morgan Saudi Arabia, legal advisers Al Jadaan - Clifford Chance, chartered accountants KPMG, and various media representatives were present.
Khalid A. Al-Falih, Aramco president and CEO, said the merger would make the joint fleet the fourth largest owner of very large crude carriers (VLCCs) globally, creating a platform for continued economic growth and human capital development in the Kingdom.
He said a partnership of this size gives the two national companies a greater ability to compete in world maritime transport markets and achieve further reduction in operation and maintenance as well as recurring expenditure. He said through the merger, Vela was able to increase the numbers of Saudi employees to 20 percent of the work force.
Bahri CEO Saleh Al-Jasser said the deal includes integrating the whole Vela fleet, which consists of 14 VLCCs for floating storage, five refined petroleum product tankers, Vela employees and part of its business systems within Bahri's structure.
"This process is considered the fruit of a long-term vision and the hard work and commitment of all parties," Al-Jasser said, describing it as a historic moment for Bahri as it marks a distinctive addition to the national economy.
He said: "The deal by itself is a real example of cooperation between national companies in the Kingdom. Bahri will become the exclusive maritime carrier of crude oil sold by Saudi Aramco on the basis of delivery to the client by VLCCs."
The newly merged company will work under a long-term shipping contract in accordance with agreed terms where Bahri enjoys protection when freight rates fall below the minimum agreed limit. Should freight rates increase above the agreed limit or compensation limit, Bahri in turn will compensate Saudi Aramco.
With the completion of the deal, Bahri will meet Aramco's future needs, estimated at 50 VLCCs, through the optimum employment of its own fleet, which will consist of 31 VLCCs, and leasing other carriers when needed.
Bahri and Vela have also agreed to discuss interim arrangements for the operation of VLCCs owned by Bahri within Saudi Aramco's program to transport oil. Both parties will start working on these arrangements in Jan. 2013.
In addition to being Bahri's biggest client, Saudi Aramco will own 78,750,000 new shares issued by Bahri, representing 20 percent of company shares after the issuance process. Vela will also have representation on Bahri's Board of Directors.
Saudi Aramco will continue to manage all activity of crude oil directly with its clients, while Bahri will provide reliable shipping services to Saudi Aramco.
It is expected the merger will mitigate the impact of fluctuations in shipping rates of crude oil and improve returns for all shareholders.
Bahri Chairman Al-Rubaian said signing into effect the foundation of a strategic partnership with Aramco would allow Bahri to provide reliable shipping services, especially for Saudi Aramco and for its clients in general.
He said in June this year, Bahri sealed an agreement to draft a nonbinding memorandum of understanding to merge the fleets and operations of Bahri and Vela. "This ceremony represents a critical milestone of this transaction as we gather to sign the final definitive agreements for this merger," he said.
"The Bahri-Aramco/Vela merger is about the creation and growth of a world-class national leader in the maritime shipping domain. It will help Bahri to play a leading national role in developing the national shipping industry in the Kingdom of Saudi Arabia."
He added: "This means we can contribute to creating more jobs and business opportunities. Bahri itself will be a stronger and more diverse company that is equipped to meet the future maritime transport needs for Saudi Aramco and other clients as well."
This successful merger will triple Bahri's cargo volumes and create a world-class operating fleet. Bahri will become the fourth largest company in the world in terms of fleet size and VLCC's under its management. The amalgamation of people, resources and fleets of Bahri and Vela will serve both the current and future needs of customers across the globe.
"This is truly an enormous opportunity for growth and ultimately, long-term value for Bahri shareholders," Al-Rubaian added.