UAE creates fertiliser powerhouse
New joint venture to generate annual revenue of $1.74 billion
Global oil giant Adnoc and Dutch chemical major OCI announced on Monday a strategic partnership to create a regional fertiliser powerhouse.
The new partnership will see the Abu Dhabi-based oil company combining its fertiliser business, Adnoc Fertilizers, with OCI's regional nitrogen fertiliser platform to form a new joint venture.
The JV will become the largest export-focused nitrogen fertiliser platform globally and the largest producer in the Mena region with a production capacity of 5 million tonnes of urea and 1.5 million tonnes of ammonia, partners said.
Annual revenues for the combined entity are $1.74 billion. Adnoc and OCI will respectively own a 42 per cent and 58 per cent stake in the JV.
The JV will be based in Abu Dhabi and registered in the Abu Dhabi Global Market. The board of the new entity will consist of six members nominated by OCI and four nominated by Adnoc.
Dr Sultan bin Ahmad Sultan Al Jaber, Minister of State and chief executive officer of the Adnoc Group, will be chairman of the board. The deal is expected to close in the third quarter of 2019 subject to legal and regulatory approvals.
Nassef Sawiris, CEO of OCI, will assume the role of CEO of the JV. His leadership will be supported by a joint management team of experienced key executives from OCI and Adnoc, which will drive value creation through the unlocking of substantial operational, supply chain, marketing and trading synergies across the combined platform.
"We are extremely pleased to have created this new joint venture with OCI who are a world leader in nitrogen fertilisers and share our ambition and vision to grow our new combined fertiliser business. Pooling our assets and capabilities is a value enhancing step for both companies, allowing us to leapfrog competitors to become the top nitrogen export platform globally. It will also enable us to access new markets, benefitting both existing and new customers," said Dr Al Jaber.
He said the unique business combination is in line with Adnoc's approach to value-added partnerships and will improve the profitability and cash flow of our fertiliser portfolio. "It also supports Adnoc's objectives to attract investors to Ruwais by leveraging its strategic location, world-class logistics and the UAE's abundant gas resources at commercially attractive terms. It is another milestone in the delivery of Adnoc's 2030 strategy and our ambitions to expand Adnoc's Downstream portfolio."
Sawiris said the partnership creates a first-of-its-kind export platform with best-in-class cash conversion metrics. "I believe that this platform has significant potential for future growth and value creation, with the support and under the guidance of its two key shareholders."
For the state-owned Adnoc, the latest deal is in line with its strategy to seek out international partners to unlock the potential of its subsidiaries and expand into new foreign markets.
Mihir Kapadia, CEO of Sun Global Investments, said the strategic joint venture should be viewed as the next big step in building a strong portfolio for large Middle East oil firms. "Adnoc is expanding its downstream business as part of plans to extract more value from each barrel of oil produced in Abu Dhabi - and thus help improve profits," said Kapadia.
"The main rationale for such a venture this is to ensure that big producers and countries are prepared for a time when the demand for crude slows, particularly as the shift towards cleaner forms of energy grows. These moves could prove pivotal in boosting the UAE's economy in the future, and in turn change the oil landscape. This will likely be the catalyst for other similar companies looking to take advantage of new foreign markets," said Kapadia.
Adnoc said in a statement that the new venture brings greater geographic diversity to Mena production channels, enabling greater combined market access to strengthen market share and better serve its customers around the world.
"The JV will operate a young, state-of-the-art asset base with low maintenance costs and strong free cash flow generation. As a result, the company will be well-positioned to pay its shareholders attractive dividends and to fund future organic and inorganic growth opportunities," said the statement,
In conjunction with this joint venture, Adnoc Fertilizers has also signed a new long-term gas supply agreement with Adnoc, which will provide its facilities in Ruwais with the required feedstock for its operations based on a competitive pricing formula.
Over the past months, Adnoc has been on an ambitious expansion track through a spate of strategic transactions and partnerships. Wall Street investment groups BlackRock and KKR in February agreed to invest $4 billion in Abu Dhabi's oil pipelines. In separate deals, Italian oil major Eni and Austrian producer OMV agreed to pay $5.8 billion for a stake in Adnoc's refining business. Oil field services company Baker Hughes acquired a five per cent share of Adnoc's drilling unit.
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