The merger of SIBUR and TAIF can solve the strategic problems of both companies

MOSCOW (MRC) - The deal to merge SIBUR and TAIF, announced by the companies on April 23, could solve the strategic problems of both companies, Kommersant reports.

Thus, TAIF experienced problems due to a lack of raw materials and the pressure of a huge investment program of 1.5 trillion rubles, while SIBUR ran out of ideas for new large investment projects. Analysts estimate the synergy from the merger at the first stage at a minimum of several tens of millions of dollars per year. The main risk is still obtaining consent to the deal from the FAS.

Potential synergy from the merger of SIBUR and TAIF in the conservative scenario could amount to several tens of millions of dollars in EBITDA per year. A synergistic effect can be achieved by optimizing supplies between the domestic market and exports and a more diversified resource base. The increase in capacity will make it possible to simultaneously produce many brands, in which customers are interested.

SIBUR is the largest Russian manufacturer of petroleum and gas chemistry. TAIF is a large producer of polymers and synthetic rubbers, its key enterprises are Nizhnekamskneftekhim (NKNKH) and Kazanorgsintez (KOS). It is assumed that at the first stage of the merger deal, SIBUR will receive a controlling stake in TAIF in exchange for 15% of its own shares.

The problem of raw materials became quite acute for TAIF last year, when the amount of associated petroleum gas decreased due to a decrease in oil production. In addition, "with an increase in the load of NKNK's polymer capacities, there is a decrease in supplies from SIBUR due to its reorientation to its own complex in Tobolsk," said in July 2020 the head of Tatneftekhiminvest-holding (owned by the authorities of Tatarstan and TAIF) Rafinat Yarullin. One of the main shareholders of TAIF, Albert Shigabutdinov, said on April 23: "The main thing is that from today we are guaranteed to be provided with high-quality raw materials, which were lacking like air."

"Strategically, the deal gives us access to the processing of heavier feedstocks, mainly naphtha, which can provide more product options. Light feedstock gives a good economy on a limited range of products, mainly polymers. Integration with oil refining provides a much wider choice," said the head SIBUR Dmitry Konov.

"For us, the approved investment program of TAIF is new good opportunities. Another plus of the investment program of TAIF is that a significant part of it has already been invested," says Dmitry Konov. He stressed that SIBUR undertakes to continue those TAIF projects that "are already underway and will definitely be completed." On other projects of TAIF's investment program, "we have agreed on a unified methodology for assessing their economic efficiency and making decisions on implementation."

The main risk for the deal is obtaining an approval from the FAS, given that the merged company will become a de facto monopoly on the petrochemical market in the Russian Federation. In the practice of the Russian regulator, refusal to approve a deal is relatively rare, says Georgy Kalashnikov, head of corporate and financial practice in Russia / CIS Hogan Lovells. The regulator prohibits the transaction only if competition is significantly limited and there is a complete monopolization of the market, he says. FAS also has the right to exclude a certain line of business from the perimeter of the transaction and prescribe behavioral restrictions. Ivan Kozhemyakov, head of corporate practice at the A1 Bar Association, adds that the parties to the transaction will have to fulfill the terms of the transaction approved by the FAS within nine months.

Earlier it was reported that SIBUR increased sales of polypropylene and polyethylene last year amid growing utilization of the ZapSibNeftekhim complex. This led to an increase in the company's revenue in the olefins and polyolefins segment by 77.1% to RUB 187.3 billion. This growth was mainly due to an increase in sales of polypropylene and polyethylene as a result of increased utilization of the ZapSibNeftekhim complex and was partially offset by a decrease in prices for these types of products.

SIBUR is the largest vertically integrated gas processing and petrochemical company in Russia, uniting a number of production sites in various regions of the Russian Federation. The company sells products to consumers in the fuel and energy complex, automotive, construction, consumer goods, chemical and other industries in more than 80 countries around the world.

PSC "TAIF" was established in 1995, is the parent company of the group of the same name, which includes enterprises structured in four business areas: oil and gas processing, chemistry and petrochemistry (energy); investment and financial services; building; telecommunications and complex services, including trade. TAIF Group of Companies is a large Russian holding that controls 96% of the chemical, petrochemical and oil and gas processing industries in Tatarstan. The most important of its areas is the Chemistry, Petrochemistry and Oil and Gas Processing Division, which includes the leading Russian polymer producers Nizhnekamskneftekhim and Kazanorgsintez.
MRC

1. ExxonMobil explores sale of elastic polymer business aiming reduce its debt pile

MOSCOW (MRC) -- ExxonMobil Corp, one of the world's petrochemical majors, is exploring a sale of its Advanced Elastomer Systems (AES) division, potentially valuing the elastic polymer maker at around USD800 million including debt, reported Reuters with reference to people familiar with the matter. The deal would allow the oil major to nibble at its debt pile, which totaled USD45.5 billion at the end of December. Its shares are up around 37% year-to-date on investor expectations that the company will benefit from a recovery in energy prices. Exxon has hired investment bank Morgan Stanley to solicit interest in AES from potential buyers, including private equity firms, the sources said. The sources cautioned that no deal is certain and requested anonymity because the matter is confidential. Exxon and Morgan Stanley declined to comment.

MRC

MOSCOW (MRC) -- Crude oil futures were rangebound during mid-morning trade in Asia April 26, as fundamentals in the market remained unchanged and investors exercised caution amid the deteriorating pandemic situation in India and Japan, and ahead of the OPEC+ meeting scheduled for later this week ending April 30, reported S&P Global.

At 10:50 am Singapore time (0250 GMT), the ICE Brent June contract had slipped 8 cents/b (0.12%) from the April 23 settle at USD66.03/b, while the June NYMEX light sweet crude contract was 2 cents/b (0.03%) higher at USD62.16/b.

Investors exercised caution during mid-morning trading on lingering concerns over the deteriorating pandemic situation in parts of Asia.

Japan, confronted with a rise in COVID-19 infections, has placed the Tokyo, Osaka, Hyogo and Kyoto prefectures under a state of emergency until May 11, media reports showed. The situation in India seems even more dire, with the country reporting a record 349,691 COVID-19 infections on April 24. Over the weekend, Delhi Chief Minister Arvind Kejriwal announced an extension in the capital's lockdown until May 3, while other parts of the country, including Mumbai, also remained under lockdown.

"The market is looking at the evolving situation in India, which has raised some concerns about the demand outlook for oil in the region," Warren Patterson, head of commodities strategy at ING told S&P Global Platts on April 26.

He added that the escalation of the pandemic in India, the third largest importer of crude, will be on the minds of the OPEC+ coalition when it meets on April 28 to review its earlier decision to ease production cuts from May onwards.

Analysts, including Patterson, however, ultimately believe that the meeting is likely to conclude without any surprises, and that the coalition will increase production as scheduled. Analysts, however, have cautioned that news flow from the meeting may draw attention to the impending supply increase, and consequently dampen sentiment.

As MRC informed earlier, COVID-19 outbreak has led to an unprecedented decline in demand affecting all sections of the Russian economy, which has impacted the demand for petrochemicals in the short-term. However, the pandemic triggered an increase in the demand for polymers in food packaging, and cleaning and hygiene products, according to GlobalData, a leading data and analytics company. With Russian petrochemical companies having the advantage of access to low-cost feedstock, and proximity to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products, these companies appear to be well-positioned to derive full benefits from an improving market environment and global economy post-COVID-19, says GlobalData.

We remind that in December 2020, Sibur, Gazprom Neft, and Uzbekneftegaz agreed to cooperate on potential investments in Uzbekistan including a major expansion of Uzbekneftegaz’s existing Shurtan Gas Chemical Complex (SGCC) and the proposed construction of a new gas chemicals facility. The signed cooperation agreement for the projects includes “the creation of a gas chemical complex using methanol-to-olefins (MTO) technology, and the expansion of the production capacity of the Shurtan Gas Chemical Complex”.

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

According to MRC's ScanPlast report, Russia's estimated polyethylene (PE) consumption totalled 356,370 tonnes in the first two month of 2021, down by 9% year on year. Shipments of exclusively low density polyethylene (LDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market was 246,870 tonnes in January-February 2021, up by 30% year on year. Supply of homopolymer PP and PP block copolymers increased.
MRC

MOSCOW (MRC) -- Brahmaputra Cracker and Polymer Limited (BCPL), also known as the Assam gas cracker project, has unexpectedly shut down its high density polyethylene (HDPE)/linear low density polyethylene (LLDPE) swing plant, according to CommoPlast with reference to market sources.

Thus, this plant was taken off-stream on 12 April 2021 due to technical glitches.

Based in Lepetkata, Assam, India, the plant has a production capacity of 220,000 mt/year. It resumed operations early last week.

The company also operates an ethylene gascracker and polypropylene (PP) plant at this site.

As reported earlier, the ethylene cracker, HDPE/LLDPE plant and PP plant were started up in 2015.

According to MRC's ScanPlast report, Russia's estimated polyethylene (PE) consumption totalled 356,370 tonnes in the first two month of 2021, down by 9% year on year. Shipments of exclusively low density polyethylene (LDPE) increased.

BCPL is a joint venture owned 70% by GAIL and 10% each by OIL, NRL and the Assam government.
MRC

MOSCOW (MRC) -- Russia's output of products from polymers grew in March 2021 by 11.5% year on year. However, this figure increased only by 10.3% year on year in the first three months of 2021, reported MRC analysts.

According to the Russian Federal State Statistics Service, March production of unreinforced and non-combined films rose to 125,800 tonnes from 106,100 tonnes a month earlier. Output of films products grew in January-March 2021 by 9.2% year on year to 324,500 tonnes.

Last month's production of non-porous polymer boards, sheets and films reached 35,800 tonnes versus 29,400 tonnes in February. Thus, overall output of these products reached 91,500 tonnes over the stated period, down by 3% year on year.

March production of porous polymer boards, sheets and films increased to 33,000 tonnes, up by 13.9% month on month. Overall production of these products reached 90,700 tonnes in the first quarter of 2021, compared to 64,300 tonnes a year earlier.

March production of plastic bottles and flasks grew to 2,055,000 items from 1,683,000 items a month earlier. Overall output of these plastic products totalled 5,383 bln units over the stated period, compared to 4,901 bln units a year earlier.

Last month's production of polymer pipes, hoses and fittings exceeded 67,300 tonnes versus 60,300 tonnes in February. Overall output of these products was 175,500 tonnes in January-March 2021, up by 25% year on year.

March production of sacks and bags from ethylene polymers decreased to 2,693,000,000 units, compared to 1,959,000,000 units a month earlier. Overall output of these plastic products totalled 6,709,000,000 units in the first three months of 2021, which virtually corresponds to the last year's figure.

Last month's production of linoleum and floor coverings was 14,700,000 square metres, compared to 13,300,000 square metres in February. Overall output of these products totalled 38,5 mln square metres over the stated period versus 33,3 mln square metres a year earlier.

March production of plastic windows and door blocks grew to 1.819 mln square metres and 64,200 square metres, respectively, from 1.480 mln square metres and 53,100 square metres a month earlier. Overall output of these plastic products totalled 4.444 mln square metres and 168,800 square metres, respectively, compared to 5.524 mln square metres and 196,500 square metres a year earlier.
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