ADNOC to bid $15.90bn for Germany’s Covestro

DUBAI: Abu Dhabi National Oil Company (ADNOC) is pursuing expansion internationally through targeted strategic mergers and acquisitions to become world’s leading chemicals player for low carbon petrochemicals, ammonia, and hydrogen production.

The ADX-listed company is expected to make a formal offer to acquire Covestro for about 14.4 billion euros ($15.90 billion) including debt.

As the world grapples with a transition toward sustainable energy sources, ADNOC positions itself at the forefront of this transition, seeking to capitalize on emerging markets and innovative technologies within the chemicals sector.

One of the most significant moves in ADNOC’s strategic expansion is its interest in Covestro, a prominent German chemicals company known for its production of plastics and industrial chemicals used in construction and engineering.

The acquisition, which has been under consideration for more than a year, demonstrates ADNOC’s profound commitment to diversifying its interests and enhancing its capabilities in the chemicals sector.

First by a Gulf state

The engagement with Covestro intensified after ADNOC submitted a revised indicative bid of €11.7 billion, signaling the company’s willingness to invest significantly in high-potential assets that align with its long-term strategic goals.

From a comparative perspective, Covestro’s specialisation in foam production and other innovative materials places it in alignment with the megatrend of energy transition. As industries worldwide shift towards more sustainable practices, Covestro’s portfolio becomes increasingly relevant.

The potential acquisition, if realised, would not only rank among the largest cash transactions in the chemicals sector but also mark a historical milestone as it would be the first time a DAX 40 company has been acquired by a Gulf state.

Such a precedent could pave the way for further investments from Middle Eastern firms into European assets, potentially reshaping investment dynamics within the global chemicals market.

ADNOC’s aspirations extend beyond the Covestro deal, as evidenced by its recent proposal to acquire a substantial 35 per cent stake in ExxonMobil’s plant in Baytown, Texas.

Developing low-carbon capabilities

Michele Fiorentino, the executive vice president of ADNOC’s low-carbon solutions, has indicated that this investment is not only material but also scalable, allowing for further investments should market conditions evolve favourably.

The approach exemplifies ADNOC’s strategic vision to enhance its capabilities in low-carbon energy solutions, an area that is becoming increasingly vital amid global calls for environmental sustainability and the reduction of carbon emissions.

Furthermore, ADNOC’s commitment to developing its low-carbon capabilities is reflected in its existing partnerships and holdings. The company currently holds a majority stake of 54 per cent in Borouge, a leading producer of polyolefins with significant operations across Asia, the Middle East, and Africa.

The production of polyolefins, which are essential components in the manufacturing of various plastics, positions Borouge as a critical player in the transition towards more sustainable materials.

Additionally, ADNOC’s stakes in OMV and Borealis AG further reinforce its strategic position in the European market for chemicals and polymers, allowing it to leverage synergies across its investments and expand its market reach.

The strategic maneuvering of ADNOC has also been bolstered by international collaboration, notably the agreement signed between the United States and the United Arab Emirates in December 2023.

The agreement emphasises the two nations’ mutual commitment to advancing clean energy technologies and fosters an environment conducive to investment in sustainable solutions, such as hydrogen and ammonia production.

As a key player in this collaborative framework, ADNOC’s investments signify a proactive approach to navigating the complexities of the global energy landscape while addressing the pressing need for low-carbon technologies.