ADNOC’s $60B petrochemicals power play reshapes global industry

Nearly two years of hard slog have finally resulted in a mega-deal that transforms the chemicals business of Abu Dhabi National Oil Company (ADNOC). A complex menage à trois brings together Borouge, Borealis and Nova, three polyolefins companies, in partnership with Austrian oil firm OMV. The deal is important for what it says about Abu Dhabi’s ambitions, and for the future of European chemical groups.

The deal was logical, even essential, to consolidate the cross-shareholding. In April 2022, ADNOC bought 25% in Borealis from fellow Abu Dhabi strategic investor Mubadala, OMV holding the other 75%. ADNOC and Borealis also have a joint venture, Borouge, which conducted an IPO on the Abu Dhabi stock exchange for 10% of its shares in June 2022, leaving ADNOC with 54% and Borealis with 36%. A further twist is that ADNOC also holds 24.9% in OMV, which it acquired from Mubadala last February.

But it took years of negotiation to reach agreement, and several times it looked as though the parties would have to walk away.

On March 4, OMV and ADNOC finally agreed to combine Borealis and Borouge. The final piece of the jigsaw is the acquisition of North America-focussed Nova Chemicals, yet another Mubadala holding, for $9.4 billion and the assumption of its $4 billion of debt. The two partners will each hold 46.94% of the new Borouge Group International (BGI), OMV injecting €1.6 billion to even up the stakes.

The remainder will continue to be listed on the ADX, and will also pursue a listing on the Vienna stock exchange. Minority shareholders here appear to have come out well, with only some dilution of their stake in what is now a much larger and more valuable entity. The free float will probably increase with the raise of $4 billion to help fund the Nova acquisition.

ADNOC says the combined group will be worth $60 billion or more, and will be the fourth-largest polyolefin producer in the world with 13.6 million tonnes per year of capacity. Polyolefins, including polyethylene and polypropylene, are crucial basic polymers used to make many plastic goods, such as film, bottles, toys, piping and foam. Borouge’s operations are in Abu Dhabi, where it is constructing Borouge-4, a new facility.

ADNOC’s stake in the venture will be held by its recently-established subsidiary for international growth, XRG. Given XRG’s targeted valuation of $80 billion, the Borouge deal, plus the October acquisition of German speciality chemicals maker Covestro for $16.3 billion, gets more than halfway there.

The deal marks a rationalisation, not just of the Borealis and Borouge interests, but of Abu Dhabi’s energy portfolio. A group of petrochemical assets formerly held by Mubadala, Nova the latest of them, have now been transferred to the national oil corporation. Mindful of an eventual decline in oil use for ground transport as electric vehicles surge, petrochemicals have increasingly become seen as an essential part of future-proofing the Gulf’s vast oil and gas reserves.

It’s notable, too, where Gulf strategies diverge. Saudi Aramco has extensive assets in the US, but its recent refining and petrochemical investments focus on Asia, particularly China. Most of ADNOC’s oil and gas exports are to Asia, but its recent international petrochemical and gas deals have focussed on Europe and North America.

Two other important transactions are coming up which will attract Gulf interest. Struggling bp’s lubricants unit Castrol, famous for the 1984 advert featuring Mahler’s seventh symphony, is worth about $10 billion. Aramco, alongside others, are said to be looking at buying it. And Shell is reportedly thinking of selling its European and US chemicals assets, with ADNOC surely a likely contender.

What does this mean for Europe? The continent’s chemicals industries have struggled for years under the weight of slowing growth in their domestic markets, high energy prices from late 2021 onwards, and growing overcapacity because of Chinese expansion. Borealis endured a tough 2023, profits falling from €2.1 billion to €216 million, and polyolefins margins in Europe deteriorated even further last year.

Nevertheless, for a Gulf company to achieve such a deal is still significant. It comes after ADNOC’s purchase of Covestro, again after a lengthy pursuit and with commitments on maintaining employment and boosting investment.

The Austrian state holds 31.5% of OMV’s shares and nominates two of its directors. As such, ADNOC has agreed that the new Borouge Group International (BGI) will be headquartered in Vienna. Also required was the approval of the new government in Austria, which was sworn in last week after lengthy negotiations following September’s national election.

The headwinds the deal had to overcome – even one which actually grows OMV’s petrochemicals business – are a sign of how difficult international dealmaking can be in an era of growing economic nationalism in developed countries. But the converging pressures of overcapacity, high energy prices and decarbonisation will see more Western chemicals companies seek Gulf suitors.

• Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis