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Adnoc set to become a chemicals major

1 September 2025

This package also includes:
> Regional chemicals spending set to soar 

 

At a time when global chemicals giants like Saudi Basic Industries Corporation (Sabic) and Dow Chemical are facing financial pressure due to rising feedstock costs and decreasing sales margins, Abu Dhabi National Oil Company (Adnoc) – a relatively small player in the space – is undertaking an ambitious inorganic growth strategy.

In the past 12 months, the company has initiated merger and acquisition transactions that could propel it towards becoming a major global chemicals producer.

The Abu Dhabi energy giant took the first step in that direction by announcing the acquisition of German chemicals producer Covestro in October 2024, making a takeover offer of €14.7bn ($16.3bn). Covestro’s expertise lies in areas such as chemical recycling, which are key for the future of the energy industry and a target area for Adnoc.

The agreement between XRG – Adnoc’s international business subsidiary – and Covestro, which will run until the end of 2028, includes several obligations on the part of Adnoc, including maintaining Covestro’s existing business activities, corporate governance and organisational business structure.

Regulatory approvals

Adnoc’s takeover deal for Covestro has received approvals from regulators in India and South Africa. However, it is still under scrutiny in the EU, with the European Commission having launched an in-depth investigation into the pending deal under its Foreign Subsidies Regulation, which targets non-EU firms perceived to benefit from unfair state subsidy.

[Adnoc] has initiated merger and acquisition transactions that could propel it towards becoming a major global chemicals producer

In early August, the European Commission said it had 90 working days – until 2 December – to make a decision. Adnoc, meanwhile, has contested the investigation into its takeover bid for Covestro, saying that the transaction will add value for all stakeholders.

Covestro’s supervisory and management boards have supported the takeover offer from Adnoc, and in April the firm said it remains hopeful that the transaction will close in the second half of 2025.

Potential merger

Adnoc announced a bigger transaction than the Covestro acquisition deal in March, with Austrian energy company OMV. The two companies agreed the terms of a binding framework agreement for a proposed combination of their shareholdings in Abu Dhabi’s Borouge and Austria-based chemicals producer Borealis.

Simultaneously, Adnoc also entered into a share purchase agreement with Canada-based Nova Chemicals Holdings – a company indirectly wholly owned by Abu Dhabi’s sovereign wealth institution, Mubadala Investment Company – for 100% of Nova Chemicals Corporation.

Adnoc and OMV have also agreed that on completion of the planned merger of Borouge and Borealis, the new entity – which will be known as Borouge Group International – will acquire Nova Chemicals Corporation for $13.4bn including debt, further expanding its footprint in North America.

Borouge Group International will be listed on the Abu Dhabi Securities Exchange (ADX), subject to approval by the UAE Securities & Commodities Authority (SCA) and ADX.

Under the terms of the agreement, Adnoc and OMV will hold equal stakes of 46.94% in Borouge Group International, with joint control and equal partnership. The remaining 6.12% will be in free float, subject to SCA approval and assuming all existing Borouge free float shareholders agree to exchange their existing shares in Borouge for shares in Borouge Group International.

Adnoc and OMV will hold equal stakes of 46.94% in Borouge Group International, with joint control and equal partnership

Upon completion of the deal, Adnoc will transfer its stake in Borouge Group International to XRG, which is also on course to take control of its parent company’s 24.9% stake in OMV.

The purchase price is about 7.5 times the company’s expected long-term profits before interest, taxes, depreciation and amortisation (Ebitda), and is expected to be debt financed through capital markets. 

Borouge Group International plans to raise up to $4bn of primary capital in 2026 to qualify for inclusion on global stock index MSCI and secure an investment-grade credit rating, targeting through-the-cycle net leverage of up to 2.5 times Ebitda.

The proposed deal assumes a primary cash injection of €1.6bn ($1.67bn) by OMV into Borouge Group International. This will be reduced on closing in line with the equity value of Borouge and Borealis after expected dividend payments up to completion.

The upcoming Borouge 4 project – which is the fourth expansion phase of Borouge’s petrochemicals complex in Ruwais, Abu Dhabi – is likely to be among the key growth drivers, with projected recontribution by the end of 2026, when the estimated $6.2bn project is expected to be commissioned.

Recontribution of Borouge 4, when fully operational, is expected to be at a cost of approximately $7.5bn including debt, and accretive to operating cash flows and dividends per share, with an estimated through-the-cycle Ebitda of approximately $900m.

If Adnoc’s potential takeover of Covestro were to be blocked by the European Commission, the acquisition of Nova, together with the recontribution of the Borouge 4 petrochemicals project, will still create a major polyolefins producer in the form of Borouge Group International, which could be valued at more than $60bn and would be the world’s fourth-largest by nameplate production capacity. 

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Indrajit Sen

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