Vela and Bahri Plan Fleet Merger

Saudi Aramco and the National Shipping Company of Saudi Arabia (Bahri) announced June 27, 2012, that they have signed a non-binding memorandum of understanding (MOU) to pursue the merger of the fleets and operations of Bahri and Vela International Marine Limited, a wholly owned subsidiary of Saudi Aramco. The proposed merger would create a large and more diversified national shipping company.

This merger of ships, personnel and business systems from Vela and Bahri along with management responsibility for Saudi Aramco’s very large crude carrier (VLCC) transportation system will be implemented within the corporate structure of Bahri.

"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."
Khalid A. Al-Falih
President and CEO, Saudi Aramco

With 77 vessels in its fleet following the transaction — 32 VLCCs, 20 chemical tankers, 5 product tankers, 4 roll-on roll-offs (ROROs) and 16 vessels under-construction — Bahri would become the fourth-largest owner of VLCCs globally, creating a platform for continued economic growth and human capital development in the Kingdom. It would also expand the ability of Saudi Aramco and the Kingdom to meet future maritime transport needs for its expanding downstream businesses while continuing to reliably and efficiently serve the current customers of both companies.

Through the contemplated transaction, Bahri would be the exclusive provider of VLCC crude oil shipping services to Saudi Aramco under a long-term agreement and would take responsibility for maintaining reliable crude transportation at all times. Furthermore, the two companies plan to explore ways to expand their cooperation in the maritime sector.

Under the terms of the proposed transaction, Bahri would pay Vela a total consideration of approximately US$1.3 billion (equivalent to SAR 4,875,000,000). The consideration will be comprised of a cash payment of US$832.75 million (equivalent to SAR 3,122,812,500) in addition to 78,750,000 new Bahri shares to be issued to Vela at an agreed price of SAR22.25 per share, representing a 20 percent shareholding in Bahri after the proposed share issuance on a fully diluted basis. Bahri is currently considering raising the cash consideration through debt financing from a number of sources.

Bahri has appointed JP Morgan Capital Saudi Arabia as a financial advisor for this transaction while Saudi Aramco has appointed HSBC Saudi Arabia as a financial advisor for the same purpose.

The parties will work together to insure a smooth transition and the seamless integration of their operations. Saudi Aramco shall continue to manage all crude oil marketing and sales directly with its customers, and Bahri will provide reliable transportation services to Saudi Aramco on commercial terms.

Bahri Chairman Mr. Abdullah Al-Rubaian and Saudi Aramco Senior Vice President Khalid G. Al-Buainain, who also serves as Chairman of Vela, signed the MOU today in Dhahran.

“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.

“This is a transformational step for Bahri to strengthen its strategic partnership with Saudi Aramco and offers expanded future growth opportunities to create long-term value for our shareholders,” Bahri Chairman Mr. Abdullah Al-Rubaian said.

“Saudi Aramco has taken great pride in building a major shipping company from scratch, and we’re especially pleased to be growing that company into a diversified entity that operates across the sector. 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. Mr. Al-Buainain is also senior vice president of Downstream at Saudi Aramco.

“We strongly believe that the proposed transaction presents Bahri with a unique opportunity to further diversify its business model and reinforces our ability to satisfy Saudi Aramco’s transportation needs as well as continuing to serve other customers,” Bahri CEO Mr. Saleh Al-Jasser said.

The proposed transaction is subject to a number of conditions and regulatory approvals, including completion of satisfactory legal, financial and technical due diligence, negotiation and agreement on the terms of the definitive transaction documents, approval of the transaction and related capital increase by Bahri's shareholders, and obtaining certain regulatory approvals including, without limitation, the approval of the Capital Market Authority.

This MoU expires when both parties sign definitive agreement or by notice from either party to the other. The parties intend to work toward signing the definitive transaction documentation in the fourth quarter of 2012 and to complete the transaction during the course of 2013.