Dow Weighs Exit From $20 Billion Saudi Chemical Joint Venture

Dow Inc. is considering a sale of its stake in a $20 billion chemical joint venture with Saudi Aramco as the U.S. company accelerates a portfolio optimization strategy amid a persistent industry downturn, according to people familiar with the matter.

Shares of Dow (DOW.US) rose as much as 5% in pre-market trading following the news.

Details of the Potential Sale

Dow holds a 35% stake in the joint venture, Sadara Chemical Co., with Saudi Aramco owning the remainder, according to company filings. Sources, who asked not to be identified as the information is private, indicated that Saudi Aramco is the most likely buyer for Dow's holding, which would give it greater control over the massive complex.

Other strategic or financial investors could also express interest in the stake. However, the deliberations are ongoing and no final decision has been made, meaning Dow could ultimately choose to retain its ownership. A representative for Dow did not respond to a request for comment, while Saudi Aramco declined to comment.

Strategic Rationale

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For Dow, a divestment would mark a significant strategic shift in the Middle East and align with its ongoing efforts to focus on core, higher-return businesses. A sale would also reduce Dow's financial exposure to the venture, which includes a guarantee for a $500 million revolving credit facility intended to cover potential funding shortfalls. According to a Dow disclosure, Sadara has previously drawn $80 million from that facility.

For Saudi Aramco, acquiring full or increased ownership of Sadara would support its long-term strategy of expanding its downstream chemical operations and adding more value to its hydrocarbon resources. This ambition is a key component of Saudi Arabia's national goal to diversify its economy away from oil. The state-owned energy giant is also the majority shareholder in SABIC, the country's largest chemical producer.

Background on the Sadara Venture

Established in 2011, Sadara Chemical was created to build and operate an integrated chemical complex with a total investment exceeding $20 billion. The facility operates 26 manufacturing units and produces more than 3 million tons of chemical and plastic products annually.

The venture has been one of Dow's most significant partnerships in the Middle East, making a potential exit a noteworthy change in the company's regional strategy.