Saudi Industrial Investment Group (SIIG) has offered to acquire rival National Petrochemical Company (Petrochem) to create one of the biggest petrochemical companies in the Middle East.

A non-binding agreement has been signed between the two firms on the proposed merger, which would create an entity with market capitalisation of $11.2bn, according to Bloomberg.

SIIG already owns a 50% stake in Petrochem, which in turn holds 65% interest in the Saudi Polymer Company.

SIIG has offered to issue shareholders of Petrochem with new shares in SIIG. Petrochem’s shareholders will receive 1.27 shares of SIIG in exchange for every share held in the company.

The deal would result in Petrochem delisting its shares and become a company wholly owned by SIIG.

Talks over the merger between the firms were started in September 2020. The transaction is estimated to value National Petrochem at $6.4bn (SAR24bn), according to Bloomberg.

SIIG said in a statement: “It should be noted that the MoU does not constitute a binding agreement, as the implementation of the transaction is subject to the two companies agreeing on a final binding agreement that determines the terms and conditions of the transaction.”

The proposed merger comes amid surging consolidations by the industrial firms in Saudi Arabia to improve profitability and build scale.

HSBC Saudi Arabia is serving as financial adviser for SIIG whereas GIB Capital is the financial adviser for Petrochem.

The Saudi Government owns a 13.1% stake in SIIG and 25% interest in Petrochem.

Separately, an international arbitration tribunal has awarded $607.5m as compensation to UAE-based Dana Gas for damages in its gas dispute case against the National Iranian Oil Company (NIOC).

The dispute involves a 25-year contract signed in 2001 by NIOC and Dana Gas affiliate Crescent Petroleum for the supply of 600 million cubic feet of gas.

However, NIOC failed to comply with the contract, which was effective from 2005. It never delivered gas to Dana.

Dana Gas said: “This first arbitration is now concluded and covers the period of the first eight and a half years of the 25-year gas sales agreement from 2005 to 2014.”

The firm said a second arbitration is currently underway with a ‘much larger claim’ for the remaining sixteen-and-a-half-year period of the contract.