Saudi petchems firm sets up $1.8bn joint venture with South Korean partner

The JV will build two petrochemical plants in Jubail Industrial City

The PMI's of Saudi Arabia, the UAE and Egypt improved in May with the gradual easing of lockdowns. Bloomberg

Saudi Arabia's Advanced Petrochemical Company signed a deal with South Korea’s SK Gas to set up two petrochemicals units in the kingdom with a combined value of $1.8 billion (Dh6.61bn).

Advanced Global Investment (AGIC), a subsidiary of Riyadh-listed Advanced and SK Gas Petrochemical (SKGP), a unit of South Korea's SK Engineering & Construction, have established a JV firm known as Advanced Polyolefins that will construct and operate the plants, parent firm Advanced Petrochemical said in a statement to the Tadawul stock exchange on Sunday.

The plants – a propane dehydrogenation and a polypropylene unit – will be based in the kingdom’s Jubail Industrial City, according to the bourse filing. They will have the capacity to manufacture 843,000 tons of propylene and 800,000 tons polypropylene per annum, respectively.

The founding shareholders will finance 25 per cent of the costs through equity, while the remaining 75 per cent will be funded through bank borrowings, which will be arranged by Advanced Polyolefins.

AGIC will own an 85 per cent equity stake in the JV company, while the remaining 15 per cent will be controlled by SKGP.

The JV partners expect construction to begin in 2021. The plants will be supplied with propane – their main feedstock  – by state-controlled Saudi Aramco on a long-term basis.

The financial impact of the investment is “expected after the commencement of commercial operations of the project by [the] second half of 2024”, Advanced said.

Saudi Arabia's Advanced also signed an agreement to set up a $420 million polypropylene plant in the city of Ulsan in South Korea with local firm PolyMirae in 2018. That is a joint venture in which it owns 30 per cent through its investment company, along with SK Gas and Kuwait's Petrochemical Industries Company, the company said at the time.

AGIC has already signed a “conditional land allocation” agreement for the project in phase two of Jubail Industrial City. It has also signed licence agreements with US and Italian firms to supply the technology that will run the plants.

Saudi Arabia is expanding its industrial base across sectors to diversify its economy and boost employment for Saudi nationals. The Arab world's largest economy is encouraging public and private sector firms to form partnerships with foreign investors to increase foreign direct investment in the kingdom, a key pillar of its Vision 2030 economic reform agenda.

Saudi Arabia sealed more than $2bn in investment deals with top global companies and local entities to boost investment in the petrochemicals sector, the Saudi Arabian General Investment Authority (Sagia) said in November last year.

Germany’s BASF, France’s SNF, Japan’s Mitsui, Shell and AMG (Advanced Metallurgical Group) are among the companies planning to invest in Saudi Arabia, Sagia said at the time.

According to the Invest Saudi Fall 2019 report, more than 250 overseas businesses were granted investor licenses in the third quarter of 2019, marking a 30 per cent increase compared to the same period in 2018.