LONDON, 29 September 2006 — Saudi Arabian petrochemical giant, Saudi Basic Industries Corporation (Sabic), yesterday announced that it was acquiring Huntsman Petrochemicals (UK) Ltd, a subsidiary of US-based Huntsman Corporation, in a deal valued at $700 million.
The acquired petrochemical assets include an 865ktpa (kilo tons per annum) ethylene/400ktpa propylene cracker and a complex of 1.3 million tpa aromatics facilities including logistical facilities at Wilton and North Tees. The business was acquired from ICI in 1999 and last year had revenues of $2.5 billion.
Mohamed Al-Mady, Sabic vice chairman and CEO, and Peter Huntsman, president and CEO of Huntsman Corporation, confirmed at a press briefing in London’s Canary Wharf yesterday that they have agreed terms whereby Sabic would acquire 100 percent of the shares of Huntsman Petrochemicals, which effectively comprises the company’s European base chemicals and polymers business which is based at Teeside and Wilton in the UK.
This is the second acquisition which Sabic has made through its European subsidiary Sabic (Europe). In 2002, Sabic acquired the petrochemical assets of DSM of Holland. Al-Mady stressed that the deal demonstrates Sabic’s commitment to expansion and the success of its globalization strategy.
“We have achieved substantial growth in Europe in recent years, following the successful integration of DSM’s petrochemical business in 2002. The business we are acquiring at Wilton and North Tees add additional talented employees and offer further high quality production platforms to achieve our next stage of growth, and will add to our other sites in Europe in Geleen, Holland and Gelsenkirchen, Germany,” he said.
The deal is expected to close before the end of 2006 and is subject to regulatory approvals both in the United States, UK and European Union. In the light of the problems which Dubai Ports experienced in the US during its recent $3.5 billion acquisition of P&O (including the running of six ports in the US which it was subsequently forced to sell because of security concerns), did Sabic experience any political fallout as a result of this acquisition?
Al-Mady told Arab News: “I do not really understand what political fallout there could be. Sabic has been doing business in the US for many years. The US is the largest investor in the Kingdom. Sabic is a global company and we are indebted to the US for its investment, expertise and technology.”
Al-Mady stressed that the Huntsman acquisition “sits very well with our other activities in Europe and makes our presence very strong.” He conceded that with all the Sabic expansion in East and South Asia, and now Europe, and together with its activities in the Kingdom and the Middle East, “yes, it is a bit of a stretch, but the company is coping. We are indebted to our partners in the East and West.”
Sabic, he confirmed, has been working diligently in China for the last three years. “We are hopeful that one investment will materialize in the next few years.”
Peter Huntsman reiterated that his company “is immensely proud of doing business with Sabic, which is one of the largest petrochemical companies in the world. It is important that economic ties between the US and the Gulf countries are strengthened. This deal is one more effort in that direction. It is the right move politically to have. It is imperative to have closer ties especially between private individuals and companies.”
He denied that this was a “distress sale by any account. We had multiple offers and multiple options, but decided that Sabic was the best company to continue the work that we have started and established in the UK.”
He explained to Arab News that the sale has been on the cards for more than six months and they wanted to sell to a company with a proven record and the necessary resources and commitment to continue the business in the UK. In fact, on completion of the deal, all 830 Huntsman Petrochemicals (UK) employees will transfer to Sabic under the same employment conditions including pension rights.
As part of the agreement, Sabic has agreed to complete the construction of a 400kpta capacity low density polyethylene (LDPE) plant at Wilton, Teeside at an investment of $150 million.
Mutlaq Hamad Al-Morished, Sabic’s chief financial officer, told Arab News that Sabic Europe plans to finance its overall activities including this acquisition through a mixed debt and bond package.
“We are going on a road show on Oct. 3. We plan to raise 2 billion euros. We plan to issue a benchmark bond, most likely euro medium term notes (EMTN) for 500 million euros and above, depending on the feedback we get.”
American investment bank JP Morgan has won the mandate to arrange the bond. The total financing package will be used to finance the Huntsman acquisition, on-going projects in Europe such as the expansion of the high density polyethylene (HDPE) in Gelsinkirchen in Germany, and to refinance some existing activities.
In July, Sabic announced SR8.8 billion net profit for the first half of 2006, slightly down on the SR9.8 billion for the same period in 2005.
The Sabic board also approved the distribution of semi-annual dividends of SR3.75 billion to shareholders at SR1.5 per share. Sabic is 70 percent state-owned with the remaining 30 percent owned by the public.
Sabic’s outlook for base chemicals in third quarter of 2006 is “excellent”. “We are beginning to see some reduction in prices as a result of the slight fall in the price of crude oil, but not in a major way. On balance, 2006 is proving to be a very good year,” explained Al-Mady.
The Huntsman acquisition is the last one for some time, although Sabic stresses that it is not closing the door to future acquisitions. The strategy is to upgrade existing facilities to increase capacity.
For instance, Sabic Europe plans to increase its total production capacity of all its activities from the current 6 million tons to over 10 million tons per annum.
