• Saudi Aramco takes a 50 per cent stake in a synthetic rubber joint venture for €1.2bn ($1.34bn)
  • Germany’s Lanxess’ rubber business is valued at €2.75bn or $3.1bn
  • The joint venture will ensure cheap raw materials for the rubber producer

Saudi Aramco’s foreign investment arm, Aramco Overseas Company, is to form a joint venture with German chemicals company Lanxess.

Aramco will take a 50 per cent stake in the joint venture with a €1.2bn ($1.34bn) payment.

The deal is awaiting regulatory approval and should be finalised in early 2016.

Lanxess will contribute its synthetic rubber business, comprising tire and speciality rubbers and high-performance elastomers. The business had sales of around €3bn in 2014. The joint venture will be worth around €2.75bn or $3.1bn.

Lanxess is the largest producer of synthetic rubber in the world, from 20 production facilities in nine countries with over 3,700 employees. It is going through a difficult restructuring process after posting a loss in 2013.

Saudi Aramco will ensure the joint venture has access to competitively-priced raw materials, reducing Lanxess’ production costs.

“This alliance will enable us to give the rubber business a very strong competitive position and the best possible future perspectives”, said Lanxess CEO Matthias Zachert in a press release. “Together in the future we can produce synthetic rubber in an integrated value chain from the oil field to the end product, thus establishing one of the best positioned suppliers in the world market.”

The investment is part of Aramco and Saudi Arabia’s economic diversification strategy, to increase its value-added downstream oil business.

Lanxess does not have any production sites in the Middle East or North Africa. The joint venture will be headquartered in the Netherlands.

Aramco secured $10bn of financing in February 2015, without specifying its purpose. It is now reported to be seeking another $5bn.