Saudi Aramco IPO set to fall short of USD2 trillion valuation

MOSCOW (MRC) -- Saudi Aramco left plenty of unanswered questions regarding its delayed initial public offering that was approved Sunday, and despite incentives offered to investors, analysts say the oil giant will not come close to the kingdom's desired USD2 trillion valuation, reported S&P Global.

The size and price of the Aramco local IPO will depend on the investor road-show and book-building process, Saudi Aramco officials said on Sunday.

Crown Prince Mohammed bin Salman, the mastermind behind the IPO, has previously valued Aramco at $2 trillion and said the kingdom wants to offer up to 5% of the company, making the upcoming flotation the world's biggest and beating the current leader Chinese e-commerce giant Alibaba's $25 billion offering in 2014.

"It appears that there has now been a compromise on the valuation with whisper numbers for the pricing range between USD1.6 trillion and USd1.8 trillion," said Tarek Fadlallah, CEO of Nomura Asset Management Middle East.

"This puts the dividend yield in the ballpark of other major oil companies although it still leaves the expected price to earnings at a premium. Aramco is suggesting that any premium would be justified by its competitive strengths."

Aramco announced its intention to grant aggregate ordinary cash dividends of at least USD75 billion for 2020, in addition to any potential special dividends. On November 1, Aramco declared an ordinary dividend of USD13.4 billion for the third quarter of 2019, it said on Sunday.

"Valuing Aramco is a challenging task and ultimately the market will determine the best valuation for the company," said Ellen Wald, president of Transversal Consulting and author of "Saudi, Inc.," a history of the Saudi oil industry.

"I think the most appropriate valuation will fall somewhere in the USD1.2 trillion to USD1.6 trillion range."

Aramco and the Saudi government have taken measures to entice both local and foreign investors to subscribe to the IPO.

The Capital Market Authority has allowed non-resident institutional foreign investors to subscribe to the Aramco shares in the IPO as qualified foreign investors under certain conditions, Aramco said on Sunday. In 2018, the regulator eased rules for QFIs, who can directly buy shares of Saudi stocks, to help attract foreign investments.

Saudi nationals will be eligible for bonus Aramco shares under certain conditions, the company said.

"Undoubtedly the 10% bonus share incentive offered to local retail investors holding Aramco shares for more than 180 days is a positive surprise that will help attract domestic participants," said Fadlallah.

Aramco said on Monday it posted $68 billion in nine-month net profit, an 18% decline from the year-earlier period. Analysts said the company's profitability and dividend policy will be attractive to investors.

"I think it's a stock that is going to appeal initially to income-seeking investors just given that strong payout ratio and dividend," said Neil Beveridge, Bernstein Research senior analyst.

"We have got a much clearer understanding of the fiscal regime that Aramco is going to be operating under and the nine-month results look pretty strong on cash flow basis. It is going to be down to investors to look how Aramco stacks up relative to the rest of global majors."

Bernstein values Aramco between USD1.2 and USD1.5 trillion.

Aramco's profitability, the world's largest, will be a key incentive for investors to snap up shares in the IPO, according to analysts.

The company posted a net profit of USD111.1 billion in 2018, but is expected to report reduced profit this year due to lower oil prices in 2019 vs 2018. Last week, BP reported a 41% fall in third-quarter underlying replacement cost profit to USD2.25 billion, reflecting lower oil and gas prices, maintenance and weather impacts.

"Particularly in today's IPO scene, which is dominated by tech companies that often aren't making a profit and have no foreseeable projections to make a profit, Aramco really stands out," Wald said.

"Potential investors will surely compare Aramco's Q3 results to the largely disappointing Q3 results that other big oil companies released last week. The fact that Aramco is on track to make less profit this year than last year shouldn't detract from the company's incredible profitability."

As MRC informed earlier, Saudi Aramco, which temporarily lost half of its oil production following the September 14 attacks on two key oil facilities, is running its local refineries at full capacity and is forging ahead with plans to start up new refineries. The company is also starting up a joint venture refinery in Malaysia next year. According to Aramco's bond prospectus released in April, the refining and petrochemical joint venture with Petronas - the Malaysian national oil company - collectively known as PRefChem, was supposed to start this year.

The PRefChem joint venture includes a 300,000 b/d refinery, an integrated steam cracker with capacity to produce 1.3 million mt of ethylene located in Johor, Malaysia. Aramco was supposed to provide a significant portion of PRefChem's crude supply under a long-term supply agreement. Jazan and PrefChem will help Aramco reach a gross refining capacity of 5.6 million b/d, it said in the prospectus. The company currently owns and has stakes in four refineries abroad with a total refining capacity exceeding 2 million b/d.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,436,390 tonnes in the first eight months of 2019, up by 9% year on year. Shipments of all PE grades increased. At the same time, the PP consumption in the Russian market was 909,260 tonnes in January-August 2019, up by 10% year on year. Shipments of PP block copolymer and homopolymer PP increased.

Saudi Aramco is an integrated oil and chemicals company, a global leader in hydrocarbon production, refining processes and distribution, as well as one of the largest global oil exporters. It manages proven reserves of crude oil and condensate estimated at 261.1bn barrels, and produces 9.54 million bbl daily. Headquartered in Dhahran, Saudi Arabia, the company employs over 61,000 staff in 77 countries.
MRC

Covestro closed sale of European Systems Houses business to H.I.G. Capital

MOSCOW (MRC) -- Covestro closed the sale of its European Systems Houses business to private equity firm HIG Capital on 1 November, said producer.

Covestro successfully closed the sale of its European Systems Houses business to H.I.G. Capital effective as of November 1, 2019. The sales proceeds amount to a high-double-digit euro million sum. The business comprises facilities in the Netherlands, Denmark, Spain, Germany and further businesses in Italy. Approximately 250 employees are generating annual sales of some EUR 230 million. The sale of the systems houses is part of Covestro’s ongoing efforts to optimize its portfolio.

The systems houses are offering tailor-made polyurethanes systems for customers. With its new owner H.I.G. Capital, the European Systems Houses now have the perspective to position themselves as an independent, focused player for mid-sized customers. The newly formed business will trade under the name Plixxent.

As per MRC's ScanPlast, Overall imports of Covestro"s PC granules to the Ukrainian market grew in the first three quarters of 2019 by 52% year on year. Thus, this figure increased from 1,400 tonnes in January-September 2018 to 2,100 tonnes. Covestro's material accounted for 69% of the total PC imports to the country in the first nine months of 2019 versus 54% a year earlier. Company"s shipments of material to Ukraine were 231 tonnes last months, compared to 139 tonnes in September 2018.

With 2018 sales of EUR 14.6 billion, Covestro is among the world’s largest polymer companies. Business activities are focused on the manufacture of high-tech polymer materials and the development of innovative solutions for products used in many areas of daily life. The main segments served are the automotive, construction, wood processing and furniture, and electrical and electronics industries. Other sectors include sports and leisure, cosmetics, health and the chemical industry itself. Covestro has 30 production sites worldwide and employs approximately 16,800 people (calculated as full-time equivalents) at the end of 2018.
MRC

Alpek inks deal to buy UK PET plant from Lotte Chemical

MOSCOW (MRC) -- Mexican petrochemical company Alpek has signed a deal to fully acquire a British plant from Lotte Chemical UK Limited, reported Reuters with reference to Alpek's statement.

The plant, a unit of South Korea’s Lotte Chemical, has the capacity to produce 350,000 tonnes of polyethylene terephthalate (PET) per year and is located at Wilton, Teesside.

Alpek, which did not disclose the purchase price, said the transaction will be finalized by the end of this year.

Alpek is the petrochemicals unit of Mexican conglomerate Alfa.

As MRC wrote before, in early May 2018, Alpek concluded the purchase of PET producer Petroquimica Suape (PQS) for USD385 million. Previously owned by Brazil's Petrobras, PQS owns a 700,000 mt/year PTA plant as well as a 450,000 mt/year PET plant in Ipojuca, Pernambuco, Brazil. After the acquisition, Alpek owns all these assets as well as Citepe - a polyester unit. Alpek already owns Mexico’s polypropylene producer Indelpro and DAK Americas, which produces PET in the US, Mexico, Canada and Argentina.

According to MRC's ScanPlast report, Russia's estimated PET consumption dropped in September 2019 by 10% year on year, totalling 58,210 tonnes. Overall, 551,320 tonnes of PET was processed in Russia in the first nine months of 2019, up 9% year on year.

Established in 1976, Lotte Chemical has been solidifyng its position by localizing cutting-edge petrochemical technologies. Among the high-quality products produced by Lotte Chemical through its efficient processes are ethylene, HDPE, LDPE, LLDPE, PP, functional resin, EG, SM, PIA, PET, etc. Lotte Chemical’s products are being distributed to 152 countries around the world. With the acquisition of Pakistan’s PTA in 2009, Artenius in the UK in 2010 and Titan Chemical Corp., Lotte Chemical is now able to efficiently supply excellent products to an increasing number of countries. The company is further accelerating its efforts to strengthen its global competitiveness by establishing overseas branches in Hong Kong, Russia, and USA, along with the sales corporation in China for active sales activities both in domestic and abroad.
MRC

Season of strong demand continued in the Ukrainian EPS boards market in late October

MOSCOW (MRC) -- A season of strong demand continued in the Ukrainian EPS boards market. Demand for finished products was by an average stronger from major converters than that from small- and medium-sized ones last month, according to ICIS-MRC Price report.

There was high price competition on the back of the saturation of the domestic expandable polystyrene (EPS) market. It was difficult for small EPS traders to compete with large ones. Small delays in shipments of Russian material from the warehouse in Voronezh did not have any impact on the market as a whole.

Prices of Chinese and Russian EPS were in the range of UAH42,500-45,000/tonne CPT Kiev, including VAT, last week. Demand for material at its upper price range was weak.
MRC

Explosion at Dow chemical plant in Louisiana caused no injuries

MOSCOW (MRC) -- A Dow Chemical plant near Plaquemine, Louisiana, in the US experienced an explosion on Sunday but there were no casualties, reported NCT with reference to the company's statement in a Facebook update.

"Dow Louisiana Operations had a vessel that ruptured at the site. The noise was heard in the community. There are no injuries on site," the company said on its Facebook page.

"There is no ongoing emergency at the site. The site is stable and we are in recovery mode at our Glycol 2 unit. The rest of our production units continue to run safely and reliably," it added.

Dow Chemicals operations in Louisiana include the integrated manufacturing facility near Plaquemine and brine operations in Grand Bayou.

The Louisiana Operations has 23 production units manufacturing more than 50 different intermediate and specialty chemical products, such as chlorine and PE, that are used to produce cosmetics, detergents, solvents, pharmaceuticals, adhesives, plastics for a variety of packaging, automotive parts, and electronics components.

As MRC informed earlier, Dow Chemical shut its ethylene cracker No. 3 at its Plaquemine, Louisiana site with the annual production of 758,000 mt for expansion from mid-September to end-November 2016. After the restart this cracker can produce by 250,000 mt of ethylene more than before.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,589,580 tonnes in the first nine months of 2019, up by 7% year on year. Shipments of all PE grades increased. The estimated PP consumption in the Russian market was 976,790 tonnes in January-September 2019, up by 4% year on year. Shipments of PP block copolymer and homopolymer PP increased.

The Dow Chemical Company is an American multinational chemical corporation headquartered in Midland, Michigan, United States. Dow is a large producer of plastics, including polystyrene (PS), polyurethane, polyethylene, polypropylene, and synthetic rubber.
MRC