So the latest Dow Chemical (DOW) rumor has yet another JV with Saudi Aramco. Could it be true? You betcha….
Let’s go back to last years announcement of the JV to build factories at Ras Tanura on Saudi Arabia’s Persian Gulf coast. The plants are going to have the capacity to produce as much as 8 million tons of chemicals and plastics a year, using raw materials from nearby oil and natural gas plants at a cost of 1/10th the current market rate for oil gas.
Now it is being reported that Saudi Aramco and Dow plan to build a $26 billion petrochemicals complex in Saudi Arabia to take advantage of the world’s biggest oil reserves and meet rising demand for plastics. Aramco and Dow aim to raise about $18 billion from loans and bonds starting next year to finance the project, said a banker, who declined to be identified because the plan is private. Royal Bank of Scotland (RBS) and Riyad Bank will help raise 70 percent of the project’s cost, said Abdulaziz al-Judaimi, Aramco’s vice president for new business, declining to provide an amount.
So, should we believe it?
If you remember my recent interview with CEO Andrew Liveris I asked if the most prudent use of the upcoming proceeds from the Kuwait sale wasn’t “more petrochemical JV’s, share repurchases and dividend increases”. His answer? A succinct, “Yes”.
Now, the final amounts of the project may differ from $26 billion but the deal is in the works. Liveris has made no bones about his desire to expand his petrochemical business. Here is the important point. Dow is the company of choice for nations rich in raw materials to do business with. Saudi Arabia, Kuwait, Singapore, China, Brazil and Russia are all working with Dow on various projects and what is even better for Dow shareholders is that the scale of the projects is growing exponentially larger and the cash outlays on the part of Dow to finance the deals is negligible.
Once active, the JV’s are self financing and Dow simply receives and equity payment for its interest. Nice..
Looks for details in the next 30 days. Whatever the final number, it will be big
Disclosure (“none” means no position):Long Dow
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