Jan 03 2009
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Aramco, Dow seek cost cuts
The joint venture partners made initial inquiries to engineering firms in mid-December over bidding for a bulk-handling facility at the complex, covering tankage, conveyors, packing and port works, which is estimated to be worth more than $500 million in total.
Dow is trying to be innovative and it also makes it off balance sheet, which helps with their financing.
Aramco and Dow had previously been expected to seek bids on a traditional lump sum basis.
Fitch Ratings on Wednesday said it may cut Dow Chemical Co's short-term issuer rating and commercial paper rating after Kuwait scrapped a deal to form a $17.4 billion petrochemical joint venture with Dow .
Dow 's long-term rating also remains on review for downgrade from "BBB-plus," the third lowest investment grade.
Standard & Poor's and Moody's Investors Service on Monday downgraded their ratings for Dow Chemical Company after Kuwait scrapped a $17.4 billion deal to create a petrochemicals joint venture.
Dow 's shares plunged over Wall Street fears that the company's $18.8 billion planned purchase of rival firm Rohm and Haas may be put into question.
Kuwait's decision to pull out, announced Sunday, "was unexpected given Dow 's recent confidence that it would close the transaction, and is a significant development from both a strategic and financial profile standpoint," Standard & Poor's credit analyst Kyle Loughlin said in a statement.
The ratings agency said the venture would have provided nearly $7 billion in much-need proceeds for Dow to acquire Rohm and Haas, a US specialty materials firm.
Standard & Poor's lowered its grade by two notches for Dow from "A-" to "BBB," the second-lowest investment grade. Moody's cut its ratings for Dow by one notch to "BAA1," the third-lowest investment grade, from "A3."
The US chemical giant's shares fell 19.03 percent to close at $15.32 in New York trade, while Rohm and Haas tumbled 16.08 percent to $53.34.
The failed deal "substantially increases the likelihood that Dow 's credit profile will be weakened in any reasonable scenario," Moody's said in a statement.
Moody's said the ratings for both Dow and Rohm and Haas would "remain under review pending final resolution of these issues." Standard & Poor's said it could lower its ratings again after the Rohm and Haas transaction would be completed.
The Kuwaiti government said it was canceling an agreement, signed last month, for state-owned Petrochemicals Industries Co. (PIC) to pay $7.5 billion for a stake in a 50-50 joint venture with Dow Chemical to be called K- Dow Petrochemicals.
Under the agreement, Dow would have contributed assets, including plants and research center in several countries.
The government was forced to scuttle the deal in the face of opposition from Kuwaiti lawmakers who alleged the value of those assets had plummeted due to the global financial crisis.
Moody's said its "downgrade reflects the likelihood that the political situation in Kuwait will make it more difficult to successfully complete the K- Dow transaction even at a lower price, and the lack of any contractual exit from the Rohm and Haas acquisition."
Dow said it was "extremely disappointed" by the Kuwaiti government's decision and was evaluating its options under the joint-venture agreement but remained committed to its Middle East strategy.
If the deal had not been scrapped before Jan. 1, when it was due to become effective, Kuwait would have been liable to pay a penalty of up to $2.5 billion.
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