ADNOC and OMV Strengthen Formation of Borouge Group International AG, Targeting $400 Million in Profit by 2026
In a significant development for the global petrochemical landscape, ADNOC and OMV Aktiengesellschaft have made substantial strides toward the establishment of Borouge Group International AG. This new entity is set to enhance operational flexibility and shareholder value, while also supporting future dividend payments. The formation is a strategic move that combines Borouge Plc and Borealis, alongside the acquisition of Nova Chemicals, with a targeted completion date by the end of March 2026, pending customary conditions.
Strategic Asset Usage Agreement
A pivotal element of this initiative is the recently signed Asset Usage Agreement for the Borouge 4 (B4) production complex. This integrated polyolefins facility boasts a 1.5 million tonnes ethane cracker and a polyethylene capacity of 1.4 million tonnes. The first plant is expected to commence operations within the current quarter. Utilizing proprietary Borstar® technology, B4 is positioned to produce high-quality polyethylene. The ownership structure allocates 70% to ADNOC and 30% to OMV, making it a cornerstone of the Borouge production site, which aims to become the largest single-site polyolefins complex globally.
The Agreement allows Borouge Plc, and subsequently Borouge Group International AG, to operate and market B4’s production volumes in exchange for an asset utilization fee. This arrangement is projected to yield an estimated $400 million in cumulative net profit over the next three years, equating to approximately a 10% annual increase in Borouge Plc’s earnings post ramp-up. The flexibility offered by this Agreement is crucial, as it is expected to remain in place until Borouge Group International AG acquires the asset, likely not before 2029.
Financial Ratings and Market Position
Borouge Group International AG is anticipated to receive strong investment-grade ratings from S&P, Moody’s, and Fitch, affirming its robust financial standing. The expected ratings include A (Negative) from S&P, Baa1 (Stable) from Moody’s, and A- (Stable) from Fitch. These ratings underscore the commitment of ADNOC and OMV to maintain a solid capital structure for the new entity.
With access to a total production capacity of 13.6 million tonnes across Europe, the Middle East, and North America, Borouge Group International AG is poised to become the world’s fourth-largest polyolefins producer. The integrated operations will facilitate significant synergies and a best-in-class margin profile, enhancing the company’s competitive edge in the global market.
Future Equity Raise and Tender Offer
ADNOC and OMV have reiterated the importance of a planned tender offer aimed at simplifying the corporate structure to maximize value creation. This tender offer, which will convert Borouge Plc shares into shares of Borouge Group International AG, is expected to coincide with the new company’s future equity raise, scheduled for 2027, subject to market conditions and regulatory approval from the UAE Capital Market Authority.
Until the tender offer is executed, Borouge Group International AG will remain privately held, while Borouge Plc shares will continue to be listed on the Abu Dhabi Securities Exchange (ADX). The recent credit ratings reflect the anticipated impacts and timing flexibility regarding both the equity raise and the acquisition of B4.
Shareholders of Borouge Plc, along with ADNOC and OMV, will benefit from the financial accretion provided by the Agreement. The intended annual dividend commitment of 16.2 fils per share is expected to be upheld by Borouge Group International AG following the completion of the tender offer.
Ownership Structure and Future Prospects
Upon completion of the formation, ADNOC’s stake in Borouge Group International AG will be transferred to XRG, a wholly owned subsidiary of ADNOC. This move aligns with XRG’s ambition to become a leading global chemicals investor. The new entity will be jointly governed as an equal partnership between XRG and OMV AG, each holding a 50% stake.
Both companies are committed to unlocking the full potential of Borouge Group International AG, focusing on realizing synergies and enhancing operational efficiencies. This partnership is expected to fortify the company’s position in the global petrochemical market.
Conclusion
The formation of Borouge Group International AG represents a significant advancement in the petrochemical sector, with implications for operational efficiency, shareholder value, and market positioning. As the company prepares for its future equity raise and tender offer, the strategic decisions made today will shape its trajectory in an increasingly competitive landscape.
According to publicly available www.zawya.com reporting.
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