MONOPOLY CAPITALI$M

Borouge Surges as Abu Dhabi Envisions $30 Billion Chemical Giant


Eyk Henning, Dinesh Nair and Aaron Kirchfeld
Wed, July 5, 2023 

(Bloomberg) -- Borouge Plc surged the most in over a year as Abu Dhabi explores an ambitious plan to use the company to create a chemicals and plastics giant worth more than $30 billion.

Shares of Borouge jumped as much as 9.4% in Abu Dhabi trading Wednesday, the biggest intraday gain since June 2022. They were up 4.1% at 11:44 a.m. in the United Arab Emirates, giving the company a market value of about $23 billion.

Abu Dhabi and Austria’s OMV AG are discussing the valuation and ownership structure for a potential merger of Borouge and Borealis AG, people with knowledge of the matter said. The owners may reach the broad outlines for formal negotiations in the coming weeks, according to the people.

The mooted transaction would dovetail with a wider plan by the United Arab Emirates to attract investment and technology as well as build new industries and manufacturing capabilities. State-owned Abu Dhabi National Oil Co. has been expanding a refining and chemicals hub in Abu Dhabi to find additional outlets for its oil and natural gas production and make the plastics that go into consumer goods.

Vienna-headquartered Borealis is 75% owned by OMV, with the remainder held by Adnoc. Borouge is itself a partnership between Adnoc and Borealis.

Global Market

Combining the companies would give Borouge access to Borealis’s established European markets as well as growth from the US, according to Citigroup Inc. It could also help Borouge broaden its portfolio to include more olefin monomers and base chemicals, plus offer synergies on sales and distribution costs by uniting a global customer base, Citigroup analysts wrote in a research note.

“Any merger would likely boost Borouge’s current technological abilities and product offerings,” they said. “For Adnoc we see it deepening its presence in the petrochemicals value-chain as it looks to hedge against what may happen long-term in oil transport demand.”

The two parties are discussing a possible valuation of about $10 billion for Borealis, including its Borouge stake, the people said. After taking into account potential synergies, the overall valuation of the combined entity could exceed $30 billion, the people said. The exact value and ownership structure remain the two key hurdles for any agreement and may still change, they said.

Talks have been on-and-off for several months and could still be delayed or fall apart, the people said, asking not to be identified because deliberations are private.

Plastics Ambitions

Combining Borealis and Borouge would simplify the ownership structure and is likely aimed at creating a stronger competitor to chemical rivals like Sabic, Bloomberg Intelligence analysts Salih Yilmaz and Darja Lema wrote in a research note Tuesday.

The Abu Dhabi energy group and OMV are still discussing whether they would have the same stake in the merged entity, though they envision the two parties having equal control of the board and decision-making capabilities, according to some of the people.

Under one scenario, both the Mideast investor and Austrians would eventually hold similar stakes that are less than 50%, with free float on the stock exchange making up the rest, though Adnoc could end up with a slightly larger share, they said.

The Austrian side would also prefer to have the headquarters in Europe, where most of the operations are, even if the combined entity was listed in Abu Dhabi, the people said. Representatives for Adnoc and OMV declined to comment. Spokespeople for Borealis and Borouge referred queries to their owners.

Borouge went public last year in a $2 billion initial public offering. The company, which makes specialty plastics for manufacturing and consumer goods, reported $6.7 billion in sales in 2022. Borealis employs about 7,600 people and makes plastics, chemicals and fertilizers. It had total sales and other income of €12.2 billion ($13.3 billion) last year, according to the Borealis website.

Asia Expansion

A combination would give the companies significant scale to compete, simplify the ownership structure and create more flexibility to invest and expand in Asia, where demand for chemicals and plastics continues to rise. Still, given the various stakeholders, including governments, reaching a final agreement is not ensured.

The possible deal comes at a pivotal time for OMV, whose biggest shareholders are the Austrian government followed by Abu Dhabi. OMV last year announced plans to transform itself from one of eastern Europe’s biggest fossil-fuel companies to an integrated green enterprise built around chemicals, recycling and electric-vehicle infrastructure. This February, it confirmed a Bloomberg News report that it’s considering selling some exploration and production assets as part of that shift.

Adnoc has been busy hunting for deals in this space. Chief Executive Officer Sultan Al Jaber last month made a preliminary $12 billion takeover approach for German polymers producer Covestro AG, Bloomberg News has reported. The target’s management rejected the proposal as too low, though signaled it’s open to discussing the deal at better terms.

The Abu Dhabi firm is continuing its pursuit of a potential Covestro takeover and has been studying its next steps, according to people with knowledge of the matter. Adnoc is likely to decide as soon as the next couple weeks whether to increase its offer for Covestro, the people said. A spokesperson for Covestro declined to comment.

Adnoc, which pumps almost all the oil in OPEC member United Arab Emirates, plans to invest $150 billion to expand production capacity for crude, natural gas and chemicals. It’s also investing in low-carbon energy.

--With assistance from Archana Narayanan.