Firms could buy ailing partners

Just as regional petrochemicals companies have been getting used to demand and prices falling, another major problem has emerged. It is now clear there is a real prospect of international partners pulling out of projects because of their own financial difficulties.

The situation at the $17bn petrochemicals complex at Ras Tanura planned by Saudi Aramco and the US’ Dow Chemical Company is a case in point. Senior contractors, financiers, industry analysts and consultants have all raised doubts over the ability of Dow to see through its part in financing the joint venture.

Dow’s market capitalisation today is about $6.9bn, less than its expected financial commitment to the project. Its value has fallen sharply since the collapse of a joint venture with Kuwait’s Petrochemical Industries Company in December 2008, which would have given it a one-off payment of $7bn.

A stalled $15.3bn takeover of US’ chemical company Rohm & Haas has in turn run into problems and costs Dow an estimated $100m a month while the deal remains in dispute.

Dow, the third-largest chemicals producer in the world by sales, may have to focus on keeping afloat this year rather than pursuing new joint ventures.

It is not the only company facing an uncertain future. The US’ LyondellBasell, which also has joint ventures in Saudi Arabia, filed for bankruptcy protection in January.

Abu Dhabi has shown one possible way forward. Its state-owned International Petroleum Investment Company (Ipic) agreed to buy Canada’s troubled Nova Chemicals for $2bn on 23 February, including the assumption of its debts. The purchase is not only a good fit for Ipic, but sets a useful precedent.

Growing protectionist sentiment in the West could stall other deals but, if that can be avoided, more acquisitions should follow. The region’s petrochemicals firms are cash-rich and such deals would allow important new industrial developments to move ahead.