A. Schulman announced today that it has entered into a joint venture agreement with National Petrochemical Industrial Company (NATPET) of Jeddah, Saudi Arabia ("KSA"), a subsidiary of Alujain Corporation, a Saudi Stock Exchange listed company.
The 50-50 joint venture, expected to be named NATPET-Schulman Engineering Plastic Compounds, will produce and globally sell polypropylene compounds. The joint venture is planning to build a polypropylene compounding plant in Yanbu, KSA, where it expects to begin production by the end of calendar-year 2014.
A. Schulman's initial equity investment in the relationship is approximately €11 million, or approximately $14 million. Initial project costs, including construction of the facility, infrastructure needs as well as working capital requirements are approximately €55 million, or approximately $70 million based on current exchange rates. Beyond the initial equity investment by the partners, the joint venture intends to take advantage of various low-interest loan options provided by the Saudi Industrial Development Fund and other lending institutions.
The joint venture will manufacture a line of customer-preferred engineered plastic compounds based on A. Schulman's highly regarded technology. NATPET, a well-established petrochemical producer in the region, will provide the joint venture with its regional infrastructure as well as its high-quality polypropylene resin.
The joint venture's new plant will enable A. Schulman and NATPET to serve a broad range of customers in the Middle East, Africa and India to capitalize on the growing demand for durable goods and transportation products. All sales outside of these regions will be sold directly through A. Schulman.
In addition to the joint agreement, NATPET also agreed to enter into a distribution agreement, where A. Schulman will, effective immediately, distribute polypropylene resins for NATPET in Europe to specified customer segments.
"Several aspects of this deal will accelerate A. Schulman's expansion and visibility in its priority growth markets of Africa, India and the Middle East while better serving our existing global customers with high-quality polypropylene compounds," said Bernard Rzepka, General Manager and Chief Operating Officer of A. Schulman, Europe, Middle East, Africa. "At the same time, these actions will allow us to serve global customers more effectively by creating an efficient, cost-effective and state-of-the-art manufacturing facility in the Middle East."
"By partnering with NATPET, our Company has the ability to add significant value to our supply chain as well as broaden NATPET's global exposure. As our Middle East markets continue to grow, we believe a strong presence in the region will be critical to achieving our goal of becoming the number-one niche engineered plastics manufacturer globally," said Pojhan Vahabi, Business Director Middle East.
"This joint venture furthers NATPET's vertical integration plan. It is a crucial enabler of creating further downstream projects by providing the key ingredients to manufacture auto and appliance parts in the Kingdom," said Marwan Nusair, President of Alujain.
Jamal Malaikah, President of NATPET, commented, "The project supports the Saudi government's program in developing downstream projects and adding value to the intermediary petrochemical production in KSA. It will create employment opportunities for Saudis and bring new technology to the Kingdom. We are proud to have joined hands with a leading player in the engineering plastics compounds business."