Bloomberg News

Borealis Chief Considers New Fields to Transform Chemicals Maker

February 11, 2014

Borealis AG would consider an acquisition in a new field as Chief Executive Officer Mark Garrett looks to extend the Abu Dhabi-owned company further beyond its heritage in basic polymers.

Borealis has already added fertilizers to polyolefin and basic chemical operations. “We’ve put together three profit centers, going from one in 2007, and if we find an opportunity to have a fourth one then we’d look at that,” Garrett said in an interview. A target area would have to be partly related to existing businesses, and Borealis “isn’t going to suddenly branch out into pharmaceuticals,” for instance, he said.

The company’s strengths lie in managing high-pressure technologies and dangerous substances such as ammonia. Chemical manufacturers reviewing their business holdings will create opportunities for Vienna-based Borealis, and activist shareholders pushing for the breakup of DuPont Co. (DD:US) and Dow Chemical Co. (DOW:US) also make disposals more likely, Garrett said.

Europe’s chemical industry is moving away from commodity chemicals toward markets such as ingredients for cosmetics, health supplements and food. Leverkusen, Germany-based Bayer AG (BAYN) has often been asked whether it will divest its MaterialScience plastics business to focus on drugs. The unit’s prospects are “uncertain” as the outlook for demand in Asia is clouded, according to Peter Spengler, an analyst at DZ Bank.

The division’s revenue probably fell by 2 percent to 11.3 billion euros ($15.4 billion) in 2013, Spengler estimated.

Integrating Acquisitions

Borealis’s third-quarter sales climbed 6.3 percent to 2.04 billion euros. Net debt was 1.5 billion euros at the end of 2012.

The company’s priorities this year are to integrate its acquisitions from 2013, and complete the latest expansion phase of the Borouge joint-venture plant in Abu Dhabi that will add 2.5 million tons to annual capacity for materials including polyethylene and polypropylene. The plant is about 155 miles west of Abu Dhabi City, and its ability to tap relatively cheap raw materials will enable it to sell a planned 4.5 million tons and squeeze more marginal competitors, Garrett said.

“More than a million tons of closures have been announced in Europe,” said Garrett, who also works for Abu Dhabi’s International Petroleum Investment Co. investment arm and sits on the boards of holdings for Borouge and Calgary-based Nova Chemicals Corp. “Europeans are at the wrong end of the cost curve.”

North America

Another option for Borealis, whose business is mainly in Europe, is to add a new territory, Garrett said.

Oman Oil Co. agreed in October to buy Oberhausen, Germany-based Oxea from Advent International for about $2 billion in October, highlighting a renewed interest from Gulf oil and petrochemical producers in making acquisitions.

Borealis’s link-up with Borouge, a venture of Abu Dhabi National Oil Co., may provide a model for other companies in the Gulf region looking to expand.

Borealis is unlikely to try to expand in polyolefins in the U.S. as Abu Dhabi, through IPIC, already owns polyethylene producer Nova Chemicals. Returns on that investment have been boosted by the emergence of the shale gas industry, which has caused ethane costs to plummet. IPIC owns 64 percent of Borealis and the remainder is held by Austria’s OMV AG.

The maker of melamine, phenol and ethylene is scheduled to report earnings for 2013 on Feb. 24.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net


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