The Abu Dhabi Nationwide Oil Agency (Adnoc) has agreed to pay practically €12 billion (£10 billion) for plastics maker Covestro, and sort out Covestro’s €3 billion in web debt. The state-owned oil and gasoline producer from the United Arab Emirates had pursued the German agency for over a yr in an effort to extra diversify its enterprise.
The switch fits the Adnoc’s ‘good progress and future proofing approach and our imaginative and prescient to alter right into a excessive 5 world chemical substances agency,’ acknowledged chief govt Sultan Ahmed Al Jaber.
Covestro, normal by the spin-out of Bayer’s MaterialScience division in 2015, is a primary producer of polymer provides, notably polyurethanes, polycarbonates and speciality chemical substances utilized in constructing, automotives and electronics.
‘What makes this deal unusual, except for the sheer measurement of the transaction, is that Covestro is arguably a midstream chemical substances agency,’ says Sebastian Bray, head of chemical evaluation at Berenberg Monetary establishment. ‘My view is that Adnoc, a cash-rich agency with a base in oil and gasoline and considerable experience of refining and some in upstream chemical substances, is contemplating its progress prospects on a decades-long view,’ says Bray.
Earlier this yr, Adnoc bought a 25% stake in OMV, a world energy and chemical substances group headquartered in Vienna, Austria. It moreover made strikes to amass Braskem, a Brazilian petrochemical producer, sooner than withdrawing in Would possibly.
In a consumer report, consultants Wood Mackenzie wrote: ‘Adnoc continues to develop its promoting and chemical substances segments which ought to help offset an anticipated drop in refining margins inside its downstream enterprise.’ The OMV acquisition and ongoing dialogue to ‘merge its chemical substances subsidiaries Borealis and Borouge appears set to create one in all many world’s largest polymer producers,’ the report well-known.
Wood Mackenzie’s report concluded that Adnoc’s new purchase will give it entry to revolutionary markets related to the facility transition: ‘Covestro is big in downstream polymer markets, producing a bunch of effectivity provides utilized in a variety of end use functions resembling EV chargers, automotive parts and security of wind mills.’
Within the meantime, with a ten.6% decline, the EU chemical commerce reported the third-largest drop in manufacturing in 2023, in accordance with commerce group Cefic. ‘The chemical commerce in Europe has had two very powerful years due to weak demand and higher energy costs. The state of affairs appears to have broadly stabilised, nevertheless the restoration continues to be in all probability not gathering steam,’ says Bray.
An necessary merchandise made by Covestro are polyurethanes, primarily primarily based totally on toluene diisocyanate (TDI) and methylene diphenyl diisocyanate (MDI). TDI is best acknowledged for making tender foams for merchandise like mattresses and shoe soles, but it surely certainly has a variety of various makes use of too. MDI is for making exhausting foams, principally for insulation, however as well as in coatings.
A second major class is polycarbonates, normally used to alternate metallic throughout the automotive and digital industries. The third part consists of the resins enterprise it bought from Dutch agency Royal DSM in 2021, which serves the coatings market amongst others.
Demand for these merchandise had not met expectations for the ultimate two to a couple years, partly due to gradual monetary progress in China and parts resembling stress on the automotive commerce. Nonetheless, chemical substances demand continues to be extra more likely to develop throughout the mid- and long-term, says Bray, even when not on the same payment as a result of the earlier two to a couple a few years.
Adnoc has agreed to care for Covestro’s present enterprise actions, firm governance and enterprise development, along with agreements with employees. There are not any plans to advertise, shut or significantly reduce Covestro’s enterprise actions as part of the deal. The transaction is structured in a method that may give Covestro over €1 billion to take a place its progress approach. Covestro has ‘been considering setting up a model new largescale MDI plant and its plausible that among the many proceeds may presumably be used for that goal,’ says Bray.
The deal has turned heads. ‘That an asset of this measurement and standing is acquired by an oil and gasoline agency may change investor expectations about what is possible in terms of oil and gasoline searching for chemical substances firms for the following few years,’ says Bray.
The deal appears innocuous from a regulatory perspective, he says. ‘Adnoc is simply not presently involved in polyurethanes or polycarbonates,’ Bray explains. ‘It has some publicity by Borouge to ethylene and to propylene chemistries, nevertheless there is not a precise present overlap between its corporations and that of Covestro.
‘In the long run this deal tells us that two harmful years for the European chemical sector and the comparatively deep pockets of oil and gasoline producers may incentivise some oil and gasoline makers to buy chemical firms as a method of securing progress for the long term,’ says Bray.
‘Then once more, it moreover tells us that the chemical belongings are nonetheless participating to patrons, who most probably know that their profitability is close to its trough.’