Abu Dhabi National Oil Company (Adnoc) has announced a new strategic partnership with OCI, a global producer and distributor of natural gas-based fertilizers and industrial chemicals based in Netherlands.
The partnership will see the Emirati group combine its fertilizer business, Adnoc Fertilizers, into OCI’s Middle East and North Africa (Mena) nitrogen fertilizer platform to form a new joint venture.
The JV will become the largest export-focused nitrogen fertilizer platform globally and the largest producer in the Mena region with a production capacity of 5 million tonnes of urea and 1.5 million tonnes of sellable ammonia.
As per the deal, Adnoc will own a 42% stake, while OCI will have the rest 58% in the JV. Annual revenues for the combined entity are set to hit $1.74 billion, based on 2018 pro forma figures.
This combination brings greater geographic diversity to the platform's Mena production channels, enabling greater combined market access to strengthen market share and better serve its customers around the world.
It will have a centralized commercial team, supported by a robust storage and distribution infrastructure with access to key ports on the Mediterranean, Red Sea and Arabian Gulf, said the statement.
The JV will operate a young, state-of-the-art asset base with low maintenance costs and strong free cash flow generation. As a result, the company will be well-positioned to pay its shareholders attractive dividends and to fund future organic and inorganic growth opportunities.
In conjunction with this joint venture, Adnoc Fertilizers has also signed a new long-term gas supply agreement with Adnoc, which will provide its facilities in Ruwais with the required feedstock for its operations based on a competitive pricing formula.
The JV will be based in Abu Dhabi and registered in the emirate’s international financial centre, Abu Dhabi Global Market (ADGM), furthering the development of fertilizer expertise and trading in Abu Dhabi.
The new venture will be headed by Dr Sultan bin Ahmad Sultan Al Jaber, Minister of State and Adnoc Group CEO as the board chairman. It will consist of six members nominated by OCI and four by Adnoc.
Nassef Sawiris will assume the role of CEO of the new company, alongside his current role as OCI chief. His leadership will be supported by a joint management team of experienced key executives from OCI and Adnoc, which will help drive value creation through the unlocking of substantial operational, supply chain, marketing and trading synergies across the combined platform.
Dr Al Jaber said: "We are extremely pleased to have created this new joint venture with OCI who is a world leader in nitrogen fertilizers and share our ambition and vision to grow our new combined fertilizer business."
"Pooling our assets and capabilities is a value-enhancing step for both companies, allowing us to leapfrog competitors to become the top nitrogen export platform globally. It will also enable us to access new markets, benefitting both existing and new customers," he added.
On his new role, Sawiris said: "I am very pleased to start a long-term strategic partnership with Adnoc, a company which has a clear downstream strategy and drives to unlock value. This partnership creates a first-of-its-kind export platform with best-in-class cash conversion metrics."
"I believe that this platform has significant potential for future growth and value creation, with the support and under the guidance of its two key shareholders," he stated.
Adnoc Fertilizers has a track record of more than 35 years in fertilizer production, operating two plants in Adnoc’s integrated downstream complex in Ruwais in the UAE.
The first plant, Fertil-1, began production of ammonia and urea in 1983, and the second plant, Fertil-2, became operational in 2013. The plants combined have an annual capacity of 1.2 million tonnes of gross ammonia and 2.1 million tonnes of urea.
Central to Adnoc’s 2030 strategy is the significant expansion of Adnoc’s Downstream business. In May last year, Adnoc announced its new downstream strategy that includes an Dh165 billion ($45 billion) investment programme that will see the Ruwais Industrial Complex upgraded to significantly increase its flexibility and capabilities to produce greater volumes of higher-value refined and petrochemical products.
The transaction is expected to close in the third quarter of 2019, subject to legal and regulatory conditions.
Citi acted as exclusive financial advisor and Shearman & Sterling as legal counsel to Adnoc on the transaction. JP Morgan Securities acted as exclusive financial advisor and Cleary Gottlieb Steen & Hamilton as legal counsel to OCI on the transaction.