Saudi energy giants shuffle project stakes
Thursday, Sep 07, 2017
US-based Dow Chemical and state-run Saudi Aramco announced plans in late August for the American firm to acquire an additional stake in their joint five-year-old Sadara Chemical joint venture (JV).

Sadara is the project company for the ground-breaking multi-billion dollar petrochemicals complex completed in August at Jubail on the East Coast.
The partners have been discussing equalising their holdings for some time, against a backdrop of wider corporate flux.

Meanwhile, Royal Dutch Shell, likewise emerging from a period of major internal change, finally completed its withdrawal earlier in August from a decades-old downstream partnership with Aramco’s parastatal counterpart, Saudi Basic Industries Corp. (SABIC).

Dow and Aramco on August 28 announced their signature of a non-binding memorandum of understanding (MoU) calling for the US firm to acquire an additional 15% holding in Sadara, leaving the two as 50:50 equal partners.

The financial terms were not disclosed and the deal was said to be contingent on Dow’s intended separation of a “materials services company” within 18 months of the company’s US$147 billion merger with fellow American chemicals titan DuPont – which was formally concluded on August 31 – and Sadara’s completion of a “creditors’ reliability test” required as part of the project-financing sealed some four years ago.

The two US giants’ plans to divide the company into three spin-offs – focusing on ‘materials’, agriculture and certain specialist products – has been a source of controversy among both companies’ investors in the lead-up to the ground-breaking deal. The shape and number of the separated businesses will remain under review after the tie-up.

Dow described the firm’s Saudi move as being “another accelerator in Dow’s long-term growth strategy designed to capture growing consumer-led demand in our key end-markets of transportation, infrastructure, packaging and consumer products in developing regions”. Meanwhile, Aramco hailed the additional investment as a signal of confidence in the kingdom’s economy.

Energy sector ties between the two countries have tightened over the past six months – with Aramco concluding a deal in May to acquire full control over the US’ largest refinery in the process of the dissolution of the Saudi firm’s Motiva Enterprises JV with Shell.

Dow deepened its engagement with the Sadara scheme in particular and with the kingdom’s economic development efforts in general in the same month. Plans were announced for a greenfield polymers plant at the PlasChem Park being developed by Sadara in co-operation with the government’s Royal Commission for Jubail & Yanbu (RCJY) adjacent to the new complex to house a cluster of conversion and specialist industries supplied by the main plant.

The American company also signed an MoU to carry out feasibility studies into the development of a ‘world-scale’ siloxanes and silicones facility at an unspecified location in the kingdom.

The limited-recourse project financing for Sadara referred to in the latest MoU was completed in mid-2013 – with the US$12.5 billion raised breaking the regional record for such deals.

The packages were comprised primarily of funding from export credit agencies, including a US$5 billion tranche from US Export-Import Bank, as well as a commercial loan and a bond issue.

Plans at the time to stage an initial public offering (IPO) of part of Aramco’s stake were abandoned in the wake of the market downturn the following year but had been mooted again in April this year by Sadara CEO Ziad al-Labban as an alternative means of reducing the Saudi firm’s equity interest.

The estimated US$20 billion project, launched in 2012, covers the development of the kingdom’s first mixed-feed cracker and 26 downstream units producing around 3 million tpy of a diverse range of chemicals. The final unit was commissioned on August 14.

Shell’s landmark acquisition of the UK’s BG Group last year by contrast prompted a loosening of Saudi ties.

Just under a year after Motiva’s intended break-up was disclosed, the super-major revealed plans in January to divest the company’s 50% stake in Saudi Arabia Petrochemical Co. (SADAF) – a Jubail-based JV with SABIC formed in 1980 to develop a petrochemicals complex at the industrial city – as part of a wider US$30 billion programme of asset sales.

Announcing completion of the US$820 million deal on August 16, the Saudi downstream behemoth claimed that full ownership would “enable SABIC to optimise operations at SABIC and further invest in the facilities, integrating them with SABIC’s other affiliates”.

In late 2014, the JV cancelled plans to add a polyurethane plant at the SADAF complex based on Shell technology at an estimated cost of some US$3 billion – which would have been the first of its kind in the Middle East, a mantle now stolen by Sadara.

The SADAF facility currently produces around 4 million tpy of chemicals including ethylene, styrene, caustic soda and ethylene dichloride.

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