Kuwait cancels $ 17 bn deal with Dow Chemical

Kuwait decided to scrap a deal to form a $ 17.4 bn petrochemical joint venture with Dow Chemical, potentially upsetting the largest US chemicals company's plans to buy rival Rohm & Haas. The cancellation of the deal, which had met opposition in Kuwait's parliament, was acknowledged by Dow, which had planned to use the proceeds to repay a large part of $ 13 bn in debt it will have to shoulder once its acquisition of Rohm & Haas closes.
"It is doubtful that Dow will be able to easily raise the funds and might opt to pay a cancellation fee," an Egan-Jones Rating Co report said.

The Rohm & Haas deal carries a termination fee of $ 750 mm for Dow, according to a Securities and Exchange Commission filing in September. Dow agreed to buy Rohm & Haas for $ 15.3 bn in July in a move to broaden its specialty product offerings.
In a separate statement, Rohm & Haas said completion of Dow's joint venture was not a condition for the closing of its takeover. It said it continued to work diligently to complete its deal in early 2009.

Earlier this month Kuwait's State-run Petrochemical Industries Co (PIC) signed a deal with Dow to launch the joint venture, K-Dow Petrochemicals, and was due to pay $ 7.5 bn. The deal was part of Dow's strategy to reduce its exposure to the cyclical nature of the commodity chemicals business.
The country's Supreme Petroleum Council, at a meeting headed by Prime Minister Sheikh Nasser al-Mohammad al-Sabah, "arrived at the decision to cancel the contract," a report said.

Kuwait and Dow had lowered the value of the joint venture more than 8 % to $ 17.4 bn earlier this month after the Gulf Arab state asked to cut its contribution in light of a sharp slowdown in global demand.
The new company had been due to market petrochemicals and plastics such as polyethylene, polypropylene and polycarbonate, used in products ranging from plastic bottles and compact disks to computers and agricultural compounds.

Crisis hits joint venture
The deal would have been the latest between a major US company and Middle East investors. General Electric and Abu Dhabi investment agency Mubadala Development formed an $ 8 bn joint venture in July to provide commercial finance in the Middle East and Africa. But the Dow joint venture angered some Kuwaiti parliamentarians who said the project was not economically viable in light of the global financial crisis and slumping petrochemical sales.
A cabinet statement said the global crisis had prompted the cabinet to ask the council "to take the necessary measures to cancel the contract... within a sound legal framework while safeguarding the state's rights and interests," the report said.

Four liberal MPs had threatened to question the prime minister, a senior member of the ruling family, unless the deal was scrapped. Another move by some deputies to question Sheikh Nasser on another issue had prompted the cabinet to resign in November, though the ruler reappointed his nephew.
Parliament has a history of challenging the governmentwith the same liberal MPs having opposed building the $ 15 bn Al-Zour refinery for which final contracts have not yet been signed despite an award in May.

Dow disappointed
Dow said it was "extremely disappointed with the decision by the Kuwait government, and is in the process of evaluating its options pursuant to the joint venture formation agreement." The Midland, Michigan-based company added that it "remains committed to its Middle East strategy."
Dow and other chemical makers around the globe face one of the worst slumps ever in chemical demand, due to recessions in most developed countries and a sharp slowdown in emerging economies. Earlier this month, Dow said it would close 20 facilities, divest several businesses and cut 5,000 jobs, or 11 %, of its workforce. It also plans to temporarily idle about 180 plants.