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«SIBUR» LLC is the managing organization of PJSC «SIBUR Holding».

117218, Moscow, Krzhizhanovsky st., 16/1

Russia Emerges As A Petrochemicals Powerhouse Amid SIBUR-TAIF Deal, Potential IPO In 2022

  • Petrochemicals sector shows robust growth despite the pandemic effects
  • Industry competition intensifies amid market consolidation
  • The merger of Russia’s SIBUR and TAIF creates a top 5 global producer of polymers and rubbers, making Russia one of the leading petrochemicals powerhouses
  • The merger will create synergies, increasing the potential value of the merged company and laying the ground for an IPO

The global petrochemicals sector is recovering fast from the pandemic. It is expected to grow from $365.01 billion in 2020 to $429.11 billion in 2021 at a compound annual growth rate (CAGR) of 17.6%. The growth is mainly due to the companies rearranging their operations and recovering from the COVID-19 impact. Overall, the market is expected to reach $477.85 billion in 2025 at a CAGR of 3% as global petrochemical demand continues to grow. (Petrochemicals Global Market Report)

Russia is no exception. The pandemic, which triggered an increase in the demand for polymers in food packaging, and cleaning and hygiene products, puts Russian producers, who have the advantage of access to low-cost  feedstock, and proximity to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products, in the right spot to benefit from an improving post-COVID market environment, according to GlobalData. As such, companies continue to evaluate their capital structure, focus on key projects ensuring  sustainable growth and potential deals to strengthen their positions amid the intensifying global competition.

A Russian company that is already successfully competing on global markets and is best positioned to benefit from the positive market dynamic is the petrochemicals national champion Sibur. The company’s results released last week confirm the trend towards economic recovery and growth in demand for polymers. Sibur is currently implementing growth plans to further expand its petrochemicals business and enter new export markets (international partnerships, Zapsibneftekhim, Amur Gas Chemical Complex) while it manages to maintain high margins, At the same time, experts expect that the competition in the market will further intensify as consolidation looms over the sector. In the US, for example, the top three petrochemical players currently account for a 40% share of the industry revenue in 2020, and this proportion is expected to be more than half of the industry revenue by 2030. (Deloitte; Ernst&Young).

Everyone remembers DuPont and Dow Chemicals merger in 2015, followed by a division into three parts, each with narrow specialization and public status. Understanding this trend and seeing the perks of joining forces, Russia’s largest players Sibur and TAIF have announced a merger. TAIF includes the largest petrochemical enterprises in the Tatarstan region, in particular KazanOrgsintez and NizhnekamskNeftekhim, which are, themselves, familiar to investors. A company will be created on the basis of Sibur, which will receive 50% + 1 share of TAIF, according to the merger agreement terms. TAIF shareholders in exchange for this will receive a 15% stake in the new organization. The deal has been approved by Russia’s anti-monopoly watchdog FAS (Federal Antimonopoly Service).

While representing the same sector, the companies focus on different product segments which will complement each other in a joined portfolio – TAIF has a stronger position in rubbers while Sibur is a leader in polymers. The combined concern would create a powerful player and one of the world’s top five producers of polyolefins and rubbers and would officially make Russia a global petrochemicals powerhouse.

For the companies, synergies lie in the possibility of optimizing capacity usage and reducing the costs of resource consumption, including the use of raw materials. TAIF has experienced problems with a shortage of raw materials, which will be now resolved. As a result, the volume of chemical exports (as opposed to raw materials) will increase. In terms of the supply chain – TAIF enterprises will also bring the merged company closer to European markets, which is important as SIBUR has recently been significantly expanding its exports to new markets.

The R&D block will be significantly strengthened as a result of the merger, which is especially important in the context of technological competition globally and the trend for automation and digitalization. Lately, Sibur has been putting special focus on R&D expanding the innovations division, and attracting international talent. Additionally, the merged company will be able to more efficiently implement large-scale investment projects both in Sibur but above all in TAIF, and in the future, focus on greater returns to shareholders through dividend payments.

All this increases the potential value of the company and becomes a new trump card in the preparation for the notional IPO – Sibur shareholders have repeatedly emphasized that over time the petrochemicals giant has every chance to become a full-fledged public company. For institutional investors, this is good news, as they are more willing to invest in larger companies, size matters to them. As a result, the shareholders of both Sibur and TAIF will win. It should be noted, as well, that investors can already purchase Sibur's Eurobonds and ruble bonds. As for the risks, primarily they concern a likely intensification in competition in the petrochemical industry, massive state 
support for a number of players, especially in the Middle East, as well as an uncertain regulatory environment, primarily in terms of possible environmental initiatives from governments on tougher ESG approaches to petrochemistry. That said, as of this moment in time, there is no serious cheap alternative to petrochemical products.

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