ExxonMobil emerges as white knight for Jurong Aromatics

Singapore

EXXONMOBIL has agreed to acquire the Jurong Island assets of Jurong Aromatics Corporation (JAC), effectively giving the beleaguered firm a new lease of life.

Confirming market speculation that has swirled for some months, the American integrated oil giant said on Thursday that it has reached an agreement on the deal, beating five other bidders such as Lotte Chemical Corp and SK from Korea, which had been shortlisted.

The acquisition sum was not disclosed, but The Business Times understands that talk in the market has put the purchase price as high as US$1.7 billion; bids from the South Korean companies were in the region of US$1 billion.

Steve Jenkins, head of Asia chemicals research at PCI Wood Mackenzie, said: "Any premium ... that ExxonMobil may have paid is likely to reflect the additional value the company expects to be able to generate as a result of its long-term expansion plans, and the operational benefits that will accrue as the two sites become linked."

ExxonMobil Asia-Pacific chairman and managing director Gan Seow Kee said: "Integration of this aromatics plant with ExxonMobil's existing manufacturing facility will provide product and logistical synergies that will enable our continued growth and competitiveness.

"Our decision to acquire the facility is also indicative of the advantages Jurong Island provides for the petrochemical and refining industry, as well as Singapore's importance in global trade and economic progress."

JAC runs one of the world's largest aromatics plants on Jurong Island, with an annual production capacity of 1.4 million tonnes.

The acquisition will boost aromatics production by ExxonMobil Singapore - already the site for ExxonMobil's largest integrated refining and petrochemical complex in the world - to over 3.5 million tonnes a year. This includes 1.8 million tonnes of paraxylene, better known as PX, which goes into making polyester.

JAC, which cost US$2.4 billion to build, has been under judicial management since September 2015.

It had started running in August 2014 after numerous delays in the financing and construction of the project, but stopped operations five months after, supposedly to "recalibrate" its production process. Hamstrung by a lack of working capital, it did not fire up again before entering into receivership.

The receivers Borrelli Walsh subsequently made a deal for a one-year tolling arrangement with Glencore and BP, under which these two companies supply feedstock to JAC and offtake its products including PX and benzene.

The arrangement expires in July.

The plant's successful re-start in last July, after having idled for 11/2 years, proved to potential buyers that it was able to run as designed, analysts have said.

The deal is a win-win for both ExxonMobil and JAC, said PCI Wood Mackenzie's Mr Jenkins.

For ExxonMobil, it presents an opportunity to access additional export logistics capacity, which had hemmed in its expansion ambitions.

For JAC, which would have faced undue pressure to generate margins when markets turn downward due to its relatively simple refining structure, ExxonMobil's integrated refining complex offers the chance to better use and upgrade refining streams that JAC itself may not have been able to access, he said.

Before it went into receivership, JAC's largest shareholders were South Korean refiner SK Energy (30 per cent) and Chinese polyester maker Jiangsu Sanfangxiang Industrial Group (25 per cent).

Other significant owners include entrepreneur Vijay Goradia of Houston-based chemicals firm Vinmar Group (10.5 per cent), Swiss trader Glencore (10 per cent) and Indonesia's Sridjaja family (9.5 per cent).

Thai KK Industry, EDB Investments and Indian multinational conglomerate Essar Group rounded up the rest of the equity interest.

ExxonMobil said it expects to complete the transaction in the second half of this year, and is working towards offering employment to many of JAC's qualified employees.

ExxonMobil, one of Singapore's largest foreign manufacturing investors with over S$20 billion in fixed-asset investments, will later this year also begin the phased start-up of new 230,000 tonne-a-year specialty-polymers facilities to produce halobutyl rubber and performance resins.

The group said its growth in Singapore is driven by an expected 45 per cent increase in global demand for chemical products over the next decade, or about 4 per cent a year. Nearly three-quarters of this increased demand is expected to come from the Asia-Pacific as a result of rising prosperity and a growing middle class, it added.