Abu Dhabi's Adnoc and OMV agree terms to create $60bn chemicals champion

The combination of Adnoc’s Borouge with OMV’s Borealis unit will create the world's fourth-largest polyolefins player

Adnoc has also signed an agreement with Nova Chemicals, a unit of Mubadala Investment Company, for its full acquisition. Reuters

Abu Dhabi’s state-owned energy company Adnoc has agreed to terms of a binding agreement with Austria’s OMV to merge their polyolefins business and create a $60 billion global champion.

Under the framework agreement, the two companies will form a joint venture company, Borouge Group International (BGI), combining Adnoc’s Borouge with OMV’s Borealis unit, Adnoc said on Tuesday.

Adnoc has also signed a share purchase agreement with Nova Chemicals, a unit of Mubadala Investment Company, for the full acquisition of Nova.

On completion of the Borouge and Borealis merger, the new entity will take ownership of Nova for $13.4 billion including debt, which will expand its footprint in North America.

“These transformative transactions mark a pivotal milestone in Adnoc’s global chemicals strategy as we deliver on our international growth mandate,” Dr Sultan Al Jaber, Adnoc managing director and group chief executive, said.

“Building on our 25-year strategic partnership with OMV, we will create a new industry powerhouse, with a portfolio of premium products, cutting-edge technologies and worldwide market access.”

The deal to combine Borouge and Borealis and subsequent acquisition of Nova Chemicals, further “solidifies Abu Dhabi’s status as a leader in the chemicals sector”, he said.

Fourth largest player

Following the deal, BGI will be the world's fourth-largest polyolefin producer, as measured by nameplate capacity, with 13.6 million tonnes per annum capacity. That includes the expected addition of 1.4 mtpa capacity from Borouge-4 by the end of 2026, at a cost of approximately $7.5 billion, which will a "key growth driver", Adnoc said.

The acquisition of Nova implies a multiple of about 7.5 time forward earnings before interest, taxes, depreciation and amortisation (Ebitda) and is expected to be debt-financed through the capital markets, Adnoc said.

The announcement of the merger culminates almost two years of negotiations between Adnoc and OMV. The two companies entered formal talks in July last year and the transaction, subject to customary regulatory approvals, is expected to be finalised during the first quarter of next year.

BGI will be headquartered and domiciled in Austria, with its regional headquarters in the UAE. The new entity, which will retain key corporate hubs in Calgary, Pittsburgh and Singapore, will be listed on the Abu Dhabi Securities Exchange.

Borouge Petrochemical Complex in Al Ruwais Industrial City. Photo: Borouge

Under the terms of the agreement, Adnoc and OMV will hold equal stakes of 46.94 per cent in BGI. The remaining 6.12 per cent will be free float, subject to the UAE's Securities and Commodities Authority's approval, Adnoc said. It is also based on the assumption that all existing free float shareholders of ADX-listed Borouge accept to exchange their shares in Borouge for BGI.

Borouge, which is a joint venture between Adnoc and Borealis, raised $2 billion through an initial public offering on the ADX in May 2022. It serves customers in more than 50 countries across Asia, the Middle East and Africa and provides polyolefin solutions for the agricultural, infrastructure, energy, advanced packaging, mobility and healthcare industries.

The global polypropylene market is projected to hit $167 billion by 2029, from about $121 billion in 2021 at a compound annual growth rate of 4.2 per cent, according to Data Bridge Market Research.

Borouge is vital to the UAE's plan to broaden its industrial base. The country plans to triple its petrochemical production capacity from 4.5 million tonnes – currently produced entirely by the Borouge factory – by 2025.

Borealis, which is majority owned by OMV and based in Vienna, is currently the eighth-largest producer of compounds such as polythene and polypropylene used in packaging, plastics and acrylics industries. It provides services and products to customers globally, both directly and in collaboration with Borouge.

Capital plans

BGI is set to raise up to $4 billion of primary capital in 2026, in a bid to get included in the MSCI index, tracked by the investors managing trillion of dollars in assets, and achieve an investment grade credit rating.

The proposed merger deal assumes a primary cash injection of €1.6 billion ($1.67 billion) by OMV into BGI.

The deal is expected to unlock significant value for shareholders through operational and commercial synergies, improved global market access and rollout of new innovations. BGI is expected to generate Ebitda of more than $7 billion a year, supported by stronger cash flow generation. The company’s dividend policy will be based on a 90 per cent payout ratio.

“These landmark transactions ... will accelerate our growth strategy in chemicals and support OMV’s transformation into an integrated sustainable chemicals, fuels, and energy company," Alfred Stern, chairman and chief executive of OMV, said. "We aim to significantly increase the sales volumes of ... polyolefin premium products and be at the forefront of renewable and circular economy solutions.”