Abu Dhabi’s General Holding Corp (Senaat) is seeking the merger of Arkan Building Materials Company and Emirates Steel to create United Arab Emirates’ biggest steel and building materials company.

Senaat, which is backed by Abu Dhabi state-owned ADQ, currently owns 51 per cent of Arkan and all of unlisted Emirates Steel.

Arkan will issue a convertible instrument to Senaat under the proposed merger deal that would automatically convert into approximately 5.1 billion ordinary shares in the capital of the company at AED0.798 per share, Senaat said in a statement.

Saeed Al Remeithi, CEO, Emirates Steel

This would imply a valuation of AED1.4 billion ($381 million) for Arkan. After the deal is completed, Senaat would own about 87.5 per cent of the entire issued share capital of the combined group. The proposed merged entity would have total assets worth AED13 billion ($3.54 billion), it said.

According to a Bloomberg report, the deal comes amid a boom in the price of steel and other metals as major economies reopen, leading to a manufacturing rebound. Futures in China, by far the biggest producer, have hit record highs -- even outpacing gains in key ingredient iron ore. Arkan shares surged as much as 15 per cent.

“The combined entity will be well positioned to benefit from expected stimulus-led increased activity in the domestic and regional construction sector and an expected economic recovery in the target markets,” said Harshjit Oza and Yawar Saeed at Abu Dhabi-based International Securities.

The indirect listing of Emirates Steel will give investors “exposure to the domestic steel sector on UAE public markets, amidst rising global steel prices,” Oza and Saeed wrote in a note. According to Senaat, the deal would mark the first time that stock traders will have access to a steel producer on a UAE public market.

The deal is another sign of consolidation among companies backed by ADQ, reports Reuters. ADQ owns Abu Dhabi Ports, Abu Dhabi Airport and bourse operator ADX. It has also built up a portfolio of food and agriculture businesses and last year bought a 45 per cent stake in commodities trader Louis Dreyfus Co.

Rothschild & Co is acting as financial adviser and Allen & Overy LLP as legal adviser to Senaat and its shareholder ADQ for the proposed Arkan-Emirates Steel merger.

Abu Dhabi has been merging some companies as it looks to bolster the economy and diversify from oil and gas production. ADQ has grown quickly since its founding in 2018 and is now the UAE capital’s third-largest SWF after Abu Dhabi Investment Authority and Mubadala Investment Co, Bloomberg added.