Polyolefins and fertilizers major Borealis AG, Vienna, said on Feb. 4 it has decided to start a process to divest its nitrogen business unit, including fertilizer, technical nitrogen, and melamine products. The group distributes around 5 million mt/y of fertilizers in Western, Central, and Southeast Europe.
Borealis said its share in the Rosier fertilizer production sites in The Netherlands and Belgium is presently not being considered within the potential sales process.
The group established a separate international Fertilizer & Melamine business unit in October 2018 aimed at strengthening the businesses (GM Sept. 28, 2018), but there has been on-and-off speculation for some time that the group was considering a sale of the business.
While Borealis has been open about its search for a partner to grow its Fertilizer and Technical Nitrogen/Melamine business, it has been more circumspect about the possibility of an outright sale of business, highlighting that the group saw further potential to generate value from its fertilizer and melamine business.
However, Borealis CEO Alfred Stern in the early months of 2020 also said the group was “open to participate in further consolidation in the European fertilizer business” but “at the right moment in time, and for the right conditions,” most recently last May, when he indicated the time was not right (GM May 8, 2020; Feb. 28, 2020). The CEO had indicated “all options were open,” but declined to confirm whether it was “as a seller or buyer of assets.”
Borealis’ fertilizer portfolio includes nitrogen, NP and NPK fertilizers, and a range of technical nitrogen products, from ammonia and ammonium nitrate to nitric acid and urea solutions. The group distributes around 5 million mt/y of fertilizers in Western, Central, and Southeast Europe via its Borealis LAT distribution network, with some 60 warehouses across Europe and an inventory capacity of over 700,000 mt, according to its website.
Since late October 2020, Borealis has come under new control. Austrian oil and gas company OMV AG, Vienna, upped its stake in the group to 75 percent from the previous 36 percent, acquiring the additional 39 percent interest from Abu Dhabi’s sovereign wealth fund, Mubadala Investment Co., for $4.68 billion (GM Nov. 6, 2020). Mubadala retained a 25 percent interest in Borealis and also owns a 24.9 percent interest in OMV.
OMV saw raising its holding in Borealis as expanding its own value chain into “higher value chemical products.” It launched a €2 billion divestment program of non-core assets through the end of 2021 to support the transaction.
At the time the shareholding deal was made public, a spokesperson for OMV declined to comment to Green Markets whether Borealis’ Fertilizer, Melamine, and Technical Nitrogen Products business, or part of that business, was a potential candidate for divestment (GM March 13, 2020).
OMV Vice President, Head of Investor Relations Florian Greger, in response to analyst inquiries whether parts of Borealis not seen as a good fit for the OMV portfolio would be sold off, said at the time it was an option that OMV would only follow up when the deal had been finalized.
In a media statement on Feb. 4, the Austrian oil and gas company confirmed that Borealis’ nitrogen business formed part of its second divestment package. OMV said it already had raised more than €1 billion in signed divestment packages.
OMV said Borealis will continue to focus on its core activities in polyolefins and base chemicals, thus extending OMV’s value chain towards higher value chemical products and the transformation towards a circular economy.
Responding to an analyst’s question in an OMV earnings call on Feb. 4 as to why the oil and gas group chose the Borealis fertilizer line to divest, and whether it was “inferior return or [post OMV taking control of Borealis] the integration issues,” Stern said, “We at Borealis have previously and quite consistently stated that Europe is an interesting and important fertilizer market. And that at the right time, we would – in the right conditions – be open to divesting the nitrogen business.
“Now over the last two years, we have successfully completed the turnaround program in the fertilizer business to make it financially more robust. And this has given a significantly improved cash flows of the business, and we believe now is actually the right time to take further steps,” the CEO continued.
“Borealis will continue to focus on the core activities, which is basically polyolefin-based chemicals and circular economy, and that also fits well with OMV when it comes to the group strategy development,” said Stern. Borealis’ polyolefins business makes up less than 50 percent of Borealis’ sales volumes, but accounts for around 70 percent of sales revenue, he said.
In response to an analyst’s question in the earnings call as to whether there is an appetite for nitrogen assets in the current market, OMV Chairman and CEO Rainer Seele said he was “more than convinced that Alfred Stern and his team will manage to sell this asset” and was “confident” that OMV would deliver the second divestment package as announced.
Borealis on Feb. 4 reported a 32 percent decline in net profit in 2020, to €589 million (approximately $708.6 million at current exchange rates) on net sales of €6.82 billion, down from the prior year’s €872 million and €8.10 billion, respectively.
In addition to the negative impact of the lower oil price environment, which resulted in reduced light feedstock advantage and negative inventory effects in Europe, as well as a lower polyolefins price environment in Asia, Borealis also highlighted “a deteriorating fertilizer market environment” as negatively impacting the full-year financial result.
“In the fertilizer business, we sold around 1 million mt per quarter last year, slightly lower than in 2019. However, the result declined significantly in the second half of the year versus the strong year 2019, due to weaker industry margins and operational issues,” Stern told analysts at an OMV earnings call on Feb. 4. “The price of natural gas, a key feedstock for production further increased in the fourth quarter, putting additional pressure on margins, as price adjustments are usually lagging behind feedstock cost increases.”
Despite the fertilizer business turndown, group net profit was up 52 percent to €210 million in the fourth quarter, an increase from €138 million in the fourth quarter of 2019, driven by a stronger polyolefin market in both Europe and Asia, Borealis said.
As a privately-run company, Borealis does not disclose publicly the individual financial results of its business units.
Borealis announced on Feb. 5 that its board had appointed Thomas Gangl, 49, currently Executive Board member of OMV AG, as CEO of Borealis. It said the decision behind the appointment follows the intensified and close cooperation between OMV and Borealis following the acquisition of the majority shares in Borealis by OMV.
Alfred Stern, 56, currently CEO of Borealis, has been appointed OMV Executive Board member for Chemicals & Materials. The changes will take effect as of April 1, 2021.