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Coatings Maker Buys Into Middle East

Wednesday, August 31, 2016

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A Japanese paint company has announced its intentions to buy a Saudi Arabian protective coatings firm as a step to gain access to the Persian Gulf area’s energy and infrastructure industries.

Osaka-based Kansai Paint Co. Ltd. confirmed in a statement Tuesday (Aug. 30) that its Kansai Paint Middle East (KPME) division and subsidiary Kansai Paint Saudi Ltd. (KP Saudi) will acquire the stock of the Saudi Industrial Paint Company (SIPCO).

oil refinery
© iStock.com / tuachanwatthana

Kansai Paint Co. Ltd. has announced  plans to acquire the Saudi Industrial Paint Company (SIPCO), which specializes in anticorrosion coatings, with the transaction expected to close by the end of 2016.

News of the proposed purchase was first reported by Bloomberg on Saturday (Aug. 28). The deal is expected to close in the fourth quarter, Kansai Paints President Hiroshi Ishino said in the business news site’s report.

Terms are still being negotiated, but Nikkei Asian Review anticipates the price to buy all outstanding shares of SIPCO will be in the hundreds of millions of yen.

Access to Oil Companies

SIPCO, located in Dammam, has a 34-year history as a protective coatings supplier and is said to be one of the largest Saudi Arabian-owned manufacturers of high-quality paints, sealants, adhesives and construction chemicals in the country.

Kansai’s interest in the company appears to be its manufacture of anticorrosion coatings for pipelines, tanks and other equipment, as well as its favorable record as a supplier to oil companies such as Saudi Aramco, according to its announcement.

With SIPCO’s anticipated procurement of government projects and development at major oil companies, “We believe acquisition of these stocks serve to accelerates not only anticorrosion but also construction businesses,” the company stated.

Moreover, SIPCO is said to be expanding its portfolio to include products such as architectural coatings, which will help the company grow its business further in the region.

oil refinery
© iStock.com / thitivong

By acquiring SIPCO, Kansai will acquire a base of operations in Saudi Arabia from which to supply protective coatings to the oil and gas industry, according to reports.

“With few major U.S. or European peers operating in the country, Kansai Paint spotted an opportunity for expansion,” Nikkei wrote.

Expanding Markets, Sales

Kansai’s largest customer base is currently in the Japanese auto industry, but the company is looking to grow its decorative paints and industrial coatings sales outside its home market, Ishino told Bloomberg.

Although the Arab states that make up the Gulf Cooperation Council (GCC)—a political and economic alliance of six Middle Eastern countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates)—have felt the impact of falling oil prices, Qatar, Kuwait and the United Arab Emirates are reportedly upgrading infrastructure and many petrochemical plants are said to be undergoing large-scale renovations.

India and the GCC “are the fastest-growing regions for the next five years, and we are hoping to expand 10 percent per year in these markets,” Ishino said.

By purchasing SIPCO, Kansai will acquire a base of operations in Saudi Arabia from which to supply protective coatings to the oil and gas industry, Bloomberg added.

Per Kansai’s description of the stock acquisition, SIPCO shows approximate sales of ¥600,000,000 (about $5.8 million).

The company expects to see sales of ¥4,500,000,000 (approximately $43.7 million) and a profit of ¥600,000,000 ($5.8 million) by 2019.

Its construction paint business will commence after completion of the acquisition, and those predicted sales figures include construction paint, it explained.

KP Saudi will own 95 percent of the business, with KPME holding the remaining 5 percent.

   

Tagged categories: Acquisitions; Business matters; Coatings manufacturers; Corrosion control coatings; Kansai Paint; Oil and Gas; Saudi Aramco; SIPCO

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