The accord with Sabic is the latest sign of the Saudi wealth fund’s growing influence over the Arab world’s largest economy. Image Credit: Shutterstock

Saudi Arabia’s sovereign wealth fund is set to create a new steel giant with the acquisition of the metals unit of chemicals maker Saudi Basic Industries Corp. for an enterprise value of 12.5 billion riyals ($3.3 billion).

The Public Investment Fund will acquire Saudi Iron & Steel Company from Sabic, as the chemicals firm is known. In a separate deal, Sabic’s steel unit Hadeed will acquire AlRajhi Steel Industries Co. in exchange for stock, according to a statement. The deal is expected to close before the end of the first quarter of 2024 and the final sale price will only be finalised then.

Sabic stock rose 1.92 per cent to a high of 90.1 riyals a share before paring gains.

The accord is the latest sign of the Saudi wealth fund’s growing influence over the Arab world’s largest economy. The PIF is responsible for most of the country’s projects intended to help diversify away from its reliance on oil sales, including developing an auto-manufacturing hub, tourism projects and building vast new cities.

“These transactions will bring together PIF’s financial capabilities and industry experience with Hadeed and Rajhi Steel’s leading technical and commercial expertise, to create a national champion in Saudi Arabia’s steel sector,” said Yazeed Al-Humied, the PIF’s deputy governor and head of Middle East and North Africa investments.

PIF, chaired by Crown Prince Mohammed bin Salman, previously owned 70 per cent of Sabic before agreeing to sell the stake to state-controlled oil producer Saudi Aramco in 2019. It made its first big deal in global metals in July with the $2.6 billion acquisition of a stake in Vale SA’s base metals unit.

Sabic, the world’s most valuable chemicals firm, said the sale of Hadeed would enable it to focus on its core business of petrochemicals production. The chemicals-maker has suffered amid a weakening global economy, reporting an 85 per cent fall in profit in the second quarter.

Hadeed produced 5.2 million tonnes of steel in 2022, according to Sabic’s annual report.

Rajhi Steel is owned by the closely held Mohammed Abdulaziz AlRajhi & Sons Investment Co.