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Adnoc, OCI Merge Mideast Assets With $1.7 Billion Sales

Adnoc, OCI Merge Mideast Assets With $1.7 Billion Sales

(Bloomberg) -- Abu Dhabi National Oil Co. and chemical producer OCI NV plan to combine their Middle East and North Africa crop-nutrient businesses, creating the region’s fertilizer producer to challenge U.S. and Russian exporters.

OCI will merge its ammonia and urea assets in North Africa with Adnoc’s fertilizer complex in the United Arab Emirates, the companies said in a statement Monday. The combined company will have $1.74 billion in annual sales, according to the statement, which confirmed an earlier Bloomberg News report.

Shares of OCI were down 2.9% at 12:27 p.m. Monday in Amsterdam, giving the company a market value of about 5 billion euros ($5.6 billion).

A global ramp-up in fertilizer output has flooded the market with too much supply, prompting players to explore consolidation to improve economies of scale and global reach. A clampdown on tax inversions scuppered CF Industries Holdings Inc.’s plan to buy OCI’s fertilizer arm in 2016.

The formation of the joint venture, which will be 58% owned by OCI, is expected to generate as much as $75 million in annual savings, the companies said. It will be headed by the Dutch firm’s chief executive officer, billionaire Nassef Sawiris.

Broadening Economy

“It looks like a sensible deal, which should generate commercial synergies and create a stronger export platform for nitrogen fertilizers,” Berenberg analyst Rikin Patel said by email.

OCI assets may be valued at around $5 billion, as it deserves a multiple of about 10 times earnings due to its superior efficiency, Patel said. Its Middle East and North Africa business generated about $501 million of adjusted earnings before interest, taxes, depreciation and amortization last year, according to a company presentation.

State-owned Adnoc has been expanding its downstream operations and bringing in partners for businesses including its pipeline network and refining unit. It has also listed its distribution unit and agreed in October to sell a 5% stake in its $11 billion drilling business to Baker Hughes. The moves come as the emirate of Abu Dhabi, home to about 6% of the world’s crude reserves, seeks to diversify an economy that’s dependent on oil. 

Adnoc Fertilizers was set up in 1980 to make urea for agricultural use. It sells its products to local and international markets, including the Indian subcontinent, the U.S., Latin America, Australia and Europe.

Growth Potential

OCI owns a plant in Egypt with capacity to produce about 1.65 million metric tons of granular urea per year, according to its latest annual report. It also has a 60% stake in another Egyptian production complex that makes anhydrous ammonia, as well as a trading arm in the United Arab Emirates. OCI’s fertilizer venture in Algeria can produce about 1.6 million metric tons of gross anhydrous ammonia and 1.26 million metric tons of granular urea annually.

“This platform has significant potential for future growth and value creation,” Sawiris said in the statement.

OCI held talks earlier this year about a potential sale of its methanol assets to Saudi Basic Industries Corp. in a deal that could have valued the business at as much as $4 billion, Bloomberg News reported in March. The Dutch company’s largest shareholder is Sawiris, who is Egypt’s richest person with a fortune of about $6.8 billion, according to the Bloomberg Billionaires Index.

The transaction with Adnoc is expected to close in the third quarter of 2019. JPMorgan Chase & Co. advised OCI on the deal, while Adnoc worked with Citigroup Inc.

--With assistance from Mahmoud Habboush.

To contact the reporters on this story: Andrew Noël in London at anoel@bloomberg.net;Dinesh Nair in London at dnair5@bloomberg.net;Aaron Kirchfeld in London at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, Andrew Noël, Amy Thomson

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