Sabic calls off specialty chemicals venture with Swiss group Clariant

Swiss firm's shares tumble as it also announces half-year loss

Sabic, the world's fourth-largest chemicals firm, is the largest shareholder in Clariant. REUTERS

Saudi Basic Industries Corporation (Sabic), the largest chemicals company in the Middle East, has shelved plans for a specialty chemicals venture with Swiss firm Clariant, citing “unfavourable market conditions”.

The companies were in discussions to merge Sabic's specialties business with the Swiss firm's high performance materials segment.

"Given the current market conditions, both parties have decided that temporarily suspending the negotiations is in the best interests of the respective shareholders of both companies," Clariant said in a statement.

Sabic has a 25 per cent stake in the Swiss company in which it became the largest shareholder in 2018. The Saudi chemicals giant acquired its interest from 40 North and Corvex Management in a deal that was estimated to be worth $2.4 billion (Dh8.8bn).

The Swiss firm also reported a net loss of 101 million Swiss francs (Dh376.1 million) for the first six months of 2019 on Thursday morning, compared to a profit of 211 million francs in the same period last year. It attributed the loss to a one-off provision of 231 million francs taken for an ongoing competition law investigation by the European Commission, plus "one-time project costs" related to the carve-out of discontinued operations. Clariant's chief executive, Ernesto Occhiello resigned from the company on Wednesday, with a company statement adding that he had stepped down "for personal reasons with immediate effect".

Clariant saw its shares drop nearly 10 per cent by 10.45am CET on Thursday, while Sabic's shares were largely flat on the Saudi stock market by midday in the kingdom.

Clariant said that it would continue to focus on its core sectors of care chemicals, catalysis and natural resources after shelving its speciality chemicals business. It also said it would continue to divest its pigments business.

Sabic said in its disclosure to the Saudi stock market that it would revisit discussions on the merger with Clariant once "conditions improved".

In March, Saudi Aramco paid $69 billion to acquire 70 per cent of Sabic, as the world’s largest oil exporter looks to create more value-added products from crude.

Specialty chemicals is a major area of interest for Sabic, with the firm engaged in the production of resins and compounds, as well as additive manufacturing.

Investment in the downstream segment of the energy value chain has become a priority for Middle East oil producers, as they look to earn revenues from sale of higher value products. Earlier this year, Saudi Aramco completed the acquisition of Dutch rubber company Arlanxeo in a transaction valued at €1.5bn (Dh6.3bn), after purchasing the remaining 50 per cent stake in German specialty company Lanxess, making it the sole owner.

Sabic, the world’s fourth-largest chemicals company, posted a 38 per cent decline in its first-quarter net profit in April, citing higher global prices for primary products as having a major impact on its bottom line.