Dow, Aramco Possible Equity Equalization of Sadara

It might be difficult to put shares of Sadara Chemicals in a public offering after US company Dow Chemical signed an agreement with Saudi Aramco to boost its interest to 50 percent. Dow owns a 35 percent stake in Sadara Chemical and said it had signed the agreement of $20 billion joint venture with Aramco.

Sadara is Chemical Company of a joint venture developed by the two companies. The current equity ownership split is 65 percent Saudi Aramco and 35 percent Dow. If the potential transaction is concluded as presently proposed, Dow and Saudi Aramco would each hold a 50 percent equity stake in Sadara.

The announcement on Monday was a surprise especially after Sadara’s chief executive Ziad al-Labban made remarks earlier this year in which he said Saudi Aramco sought to cut its share in the venture.

Saudi Aramco currently owns 65 per cent of the company and they want to equalize it with Dow’s share of 35 per cent.

A statement gave no update on the listing of Sadara and did not disclose any financial terms.

Aramco was planning on selling its 30 percent share of Satorp refinery project with Total but after Sadara’s announcement on Monday seems that Aramco won’t go ahead with its plans to sell its joint ventures in the kingdom to Saudis.

Sadara said this month it had commissioned the last plant at its petrochemicals complex in Jubail, in eastern Saudi Arabia.

Also on Monday, Dow and Aramco announced a non-binding Memorandum of Understanding (MOU) that sets forth a process for Dow to acquire an additional 15 percent ownership interest from Saudi Aramco in Sadara.

The Sadara chemical complex, the largest of its kind ever built in a single phase, is currently operating all of its 26 world-scale units that manufacture a portfolio of valued-added performance plastics and specialty chemicals.

The complex produces more than three million metric tons of performance-focused products serving Packaging, Transportation, Infrastructure and Consumer markets, which will add new value chains to Saudi Arabia’s vast hydrocarbon reserves, resulting in the diversification of the economy and region.

Saudi Aramco President and CEO Amin Nasser said that Aramco is proud of the partnership with Dow given its preeminent stature among the world’s leading chemical companies.

“Dow’s larger stake in Sadara is an endorsement of the Kingdom’s vibrant ecosystem, and signals Dow’s confidence in our partnership as a model of mutually beneficial foreign direct investment. The time is right to fully leverage Dow’s global leadership to further contribute to the Kingdom’s economic transformation in line with Vision 2030,” Nasser added.

Dow’s chairman and CEO Andrew Liverisn announced that Sadara is the result of a game-changing partnership between Saudi Aramco and Dow by delivering market-driven solutions that support the diversification of the country’s economy.

“Increasing our equity stake in this iconic joint venture is a powerful example of our strategic partnership with Saudi Aramco and is yet 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,” according to Liverisn.

The potential equity equalization would occur following the later of two events the intended separation of the Materials Science Company, within 18 months after the close of the merger of equals between Dow and DuPont on August 31.

It is also completed once Sadara completed the Creditors’ Reliability Test, which is part of the limited-recourse financing used to fund the Sadara project development.

The anticipated financial impact of the potential transaction is not being disclosed as there is no change in Sadara’s financial structure and governance.