Dow Chemical declares recovery

Company's setback following the withdrawal of Kuwait from venture plan is reversed by a profitable quarter.

Dow Chemical announced a major financial turnaround last week supported by operations in Kuwait, where the company ran into trouble a year ago. The US firm, buoyed in large part by an increase in output and sales from both EQUATE, its biggest joint venture firm in Kuwait, and the acquisition of a large speciality chemicals maker in the US, posted fourth-quarter earnings of US$1.34 billion (Dh4.92bn), compared to a loss of $724 million in the same period of 2008.

The results represented a hard-fought victory for Dow, which at this time last year was confronting the prospect of bankruptcy after Kuwait abruptly cancelled a $17.4bn joint venture that would have provided $7.2bn in cash to Dow. The company had been counting on the cash to help fund its $15.3bn acquisition of Rohm & Haas, a rival chemicals maker, three months later, and was forced instead to take out a $12.5bn bridging loan.

Dow announced last week that it had paid off the bridge loan, drastically cut costs and significantly boosted sales as a result of having acquired the Rohm & Haas operations and the start-up late last year of an expansion at EQUATE. Those moves, together with an increase in sales in emerging markets, had turned around the company's prospects, Andrew Liveris, the chairman and chief executive at Dow, said last week.

"Despite 2009's unprecedented demand destruction and the traumatic failure of [Petrochemical Industrial Company] of Kuwait to close the legally binding joint venture transaction, we acted decisively to reposition ourselves to our new realities," he said. "Our growing presence in emerging geographies will fuel earnings growth, as witnessed by our 33 per cent year-over-year growth from these regions in the fourth quarter alone."

Operations in Kuwait churned out commodity plastics and chemicals at lower cost than competitors across the world as a result of low costs for hydrocarbon feedstock, he said. The company would continue to focus on shifting commodity chemicals to areas of the world with lower fuel costs, like the Middle East, he said. "We believe - that we can generate money for the Dow Chemical Company's shareholders on a different construct, in a different ownership structure that will come in below the line," he said. "And it will generate, like you saw, $284 million of earnings, a good chunk of that coming from EQUATE last quarter."

Bill Wiedeman, the firm's interim chief financial officer, declined to specify what proportion of Dow's earning came from EQUATE, but said the firm's total equity earnings from operations in Kuwait and Dow Corning, a separate joint venture in the US, would be more than $1bn this year. Mr Liveris's public comments on Kuwait have changed significantly from early last year, when he promised legal action against Kuwaiti entities. Last month, he released a statement saying that the company's relations with Kuwait were "stronger than ever".

Dow's profits exceeded analysts' expectations and led Standard & Poors, the credit ratings agency, to increase the firm's credit outlook to "stable" from "negative" last Tuesday. @Email:[e-mail]