Dabbagh Group to buy Gulf Oil in Saudi Arabian lubricant venture

Saudi Arabian family firm Dabbagh Group is in the advanced stages of buying out its Indian partner's stake in a lubricant venture in the kingdom, a deal prompted by strategy differences between the partners, three sources aware of the matter said.

Jeddah-based Petromin is a joint venture between Gulf Oil International Group - a unit of family-owned Hinduja which owns a 49-per cent stake, and Dabbagh with a majority 51 per cent stake.

The strategic differences over the business, which sources say is valued at about $700 million, prompted Hinduja Group to hire Deutsche Bank(DBKGn.DE) last year to help review options, including a potential sale.

Dabbagh Group, which has interests in food, real estate and automobile services among others, is partly financing the purchase through debt and has decided not to engage another party in the venture for the time being, one of the sources said, speaking on condition of anonymity as the matter is not public.

"It's pretty much a done deal now and they are waiting for some formal processes before signing it. Petromin is a profitable business and it makes sense for the Saudi family to keep it within the group," the source said.

The sources were not aware of the valuation of the stake being bought. A Hinduja Group spokesman in Mumbai declined to comment. Petromin did not respond to an email request seeking comment, while Dabbagh Group could not immediately be reached for comment.

The deal highlights the challenges faced by international investors in the largest Gulf Arab economy where relationships with influential local partners and government can determine the eventual fate of businesses.

On Monday, Malaysian construction firm MMC Corp Bhd(MMCB.KL) said the Saudi government had terminated the rights of its joint venture with Saudi Binladin Group to develop the $30 billion Jazan Economic City in Saudi Arabia.

Another Saudi family conglomerate, Alhamrani Group, was considering the sale of its approximate two-thirds stake in a lubricant joint venture with Germany's Fuchs Petrolub, sources told Reuters in May last year.

Petromin, the oldest lubricant company in the Middle East and formed by royal decree in 1968, makes more than 150 lubricant products and exports to over 35 countries in the Middle East, Africa and Asia, according to its website.

Dabbagh Group and Gulf Oil International Group paid $200 million to buy Petromin in 2007 from a joint venture between Saudi Aramco and Mobil Investments, an ExxonMobil affiliate.

In 2010, Hinduja said it was planning a $1 billion initial public offering for Petromin and had hired Saudi British Bank to run the process. Hinduja said at the time Petromin had a production capacity of 300,000 metric tonnes for lubricants and greases combined. The IPO plans did not go ahead.

The Hinduja Group, which has interests across banking, media, power and automobiles in India, has a sizeable presence in the Gulf including Hinduja Bank in Dubai.

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