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The Competition Commission of India approves the proposed combination involving Abu Dhabi National Oil Company P.J.S.C., ADNOC International Limited, and ADNOC International Germany Holding AG for the acquisition of Covestro AG. The transaction includes an all-cash voluntary public takeover offer, a subsequent capital increase, and prior on-market purchases. The Commission determines that the combination does not cause an appreciable adverse effect on competition in India. This approval is subject to the condition that the information provided by the acquirers remains correct.
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COMPETITION COMMISSION OF INDIA Combination Registration No. C-2024/11/1204
10th December 2024
Notice under Section 6(2) of the Competition Act, 2002 given by Abu Dhabi National Oil Company P.J.S.C., ADNOC International Limited and ADNOC International Germany Holding AG
CORAM:
Ms. Ravneet Kaur Chairperson
Mr. Anil Agrawal Member
Ms. Sweta Kakkad Member
Mr. Deepak Anurag Member
Order under Section 31(1) of the Competition Act, 2002
On 4th November 2024, the Competition Commission of India (Commission) received a notice under Section 6(2) of the Competition Act, 2002 (Act), given by Abu Dhabi National Oil Company P.J.S.C. (ADNOC PJSC), ADNOC International Limited (ADNOC International), and ADNOC International Germany Holding AG (ADNOC Germany) [hereinafter ADNOC PJSC, ADNOC International, and ADNOC Germany are collectively referred to as the ‘Acquirers’]. ADNOC Germany is a 100% indirect subsidiary of ADNOC International, which in turn is a wholly owned subsidiary of ADNOC PJSC, which together, with its subsidiaries and controlled joint ventures forms the ADNOC Group or ADNOC.
The Notice relates to proposed: (a) acquisition of up to 100% of the share capital of Covestro AG (Covestro/Target) [hereinafter ADNOC and Covestro are collectively referred to as the ‘Parties’], by way of an all-cash voluntary public takeover offer to all Covestro shareholders (Public Takeover); and (b) additional subscription by ADNOC Germany, upon closing of the Public Takeover, to shares in Covestro, corresponding to 10% of Covestro’s current share capital, by means of a capital increase against cash consideration with exclusion of subscription rights of any remaining minority shareholders of Covestro (Capital Increase). Further, as submitted, through separate and independent transactions, ADNOC International acquired a total of 9.55% of the share capital of Covestro through multiple on-market purchases on a regulated German Stock Exchange between 1st October 2024 and 7th October 2024 (On-Market Purchase) [hereinafter, the Public Takeover, the Capital Increase, and On-Market Purchase are collectively referred to as the ‘Proposed Combination’]. The Proposed Combination, excluding the On-Market Purchase, will be undertaken pursuant to the investment agreement dated 1st October 2024 (Investment Agreement) executed by and amongst the Parties.
Considering that the Proposed Combination involves On-Market Purchase, the Proposed Combination was notified under Section 6A read with Section 6(2) of the Act. The Acquirers had filed the Notice on 1st November 2024 in accordance with Section 6A read with Regulation 5(4) of the Competition Commission of India (Combination) Regulations, 2024 (Combination Regulations). However, on account of certain technical issues, the Notice was received and taken on record on 4th November 2024.
In accordance with Regulation 14(2) of the Combination Regulations, vide letter dated 18th November 2024 (RFI), certain information and clarifications were sought from the Acquirers. The Acquirers submitted their response on 25th November 2024 (Response) and made certain additional submissions/clarifications on 4th December 2024.
ADNOC, ultimately owned by the Government of the Emirate of Abu Dhabi, is an energy and petrochemicals group operating across the entire hydrocarbon value chain through a network of fully integrated businesses. As submitted, the group is principally active in the exploration, production, storage, refining, and distribution of oil and gas, as well as in the development of petrochemical products.
Covestro, a publicly listed company (Aktiengesellschaft) incorporated under the laws of Germany, is a chemical producer that focuses on the supply of high-performance polymer materials and solutions. Covestro operates in two broad segments: (i) Performance Materials which includes standard polycarbonates, standard urethane components (including methylene diphenyl diisocyanate (MDI), toluene diisocyanate (TDI), polyether polyols), and base chemical businesses; and (ii) Solutions and Specialties which includes engineering plastics, raw materials for coatings and adhesives, tailored urethanes, thermoplastic polyurethanes, specialty films and elastomers.
As submitted, there are no horizontal overlaps/existing vertical linkages between ADNOC and Covestro in India. Covestro is engaged in the supply of MDI and TDI in India and it uses ammonia to produce nitric acid in some regions (outside of India), which goes into nitrobenzene (for MDI) or dinitro toluene (for TDI). Considering that ADNOC is engaged in the supply of anhydrous ammonia into India through its subsidiary Fertiglobe, the Proposed Combination creates a potential vertical linkage between the activities of the Parties. For assessment of the aforesaid vertical linkage, the Parties proposed the upstream market in terms of the market for supply of anhydrous ammonia and two separate downstream markets in terms of supply of MDI and TDI.
Ammonia is a compound of nitrogen and hydrogen that can be used in several ways: as an input for producing nitrogen-based fertilizers, as direct application ammonia, and for a variety of industrial applications. Anhydrous ammonia is a pure form of ammonia, without any water and has various industrial applications. The Commission notes that ammonia can be segmented further based on method of supply, i.e., tonnage supplies, bulk supplies, and cylinder supplies or in terms of green ammonia and non-green ammonia etc., but observed that, for the reasons given in subsequent part of this order, such classifications are not relevant to the assessment of the Proposed Combination as the Proposed Combination is not likely to cause appreciable adverse effect on competition (AAEC) in any of the plausible relevant market(s) in India. Accordingly, the exact delineation of upstream market can be left open.
As regards the downstream markets, the Commission noted that MDI is an important building block for production of polyurethanes and comes in multiple structural variants (such as monomeric MDIs and multifunctional polymeric MDIs) and that each structural variant has a different level of reactivity. TDI is an aromatic diisocyanate that is a clear, pale-yellow liquid with a sharp, pungent odour, which is insoluble in water and miscible with most common organic solvents and is also used in the production of polyurethanes, primarily for flexible foam applications. The Commission noted that like the upstream market, the separate downstream markets for MDI and TDI can also be classified further but observed that such classifications are not relevant to the assessment of the Proposed Combination as the Proposed Combination is not likely to cause AAEC in any of the plausible relevant market(s) in India, and accordingly, the exact delineation of downstream market(s) can be left open.
The Commission noted the submissions of ADNOC on the nature of market for anhydrous ammonia in India. Based on the information, it is understood that anhydrous ammonia is primarily used for urea production while also being used for industrial purposes (which includes the production of MDI / TDI) and for power generation and hydrogen, as bunker fuel etc. The Commission further noted the submissions that Fertiglobe does not supply anhydrous ammonia to MDI and TDI producers in India and accordingly observed that ADNOC’s presence in ammonia segment is irrelevant to the existing operational dynamics of MDI/TDI production in India. Accordingly, the assessment can be made in broader anhydrous ammonia market only in which the presence of ADNOC in India is negligible with estimated market share of less than 5%. Based on the market share estimates provided by the Acquirers, the market comprises of players such as Indian Farmers Fertilizers Coop Ltd. with share in the range of [10-15] % and Hindustan Urvarak and Rasayan Ltd., National Fertilizers Ltd., Chambal Fertilizers Ltd. and Krishak Bharati Coop Ltd., each with shares in the range of [5-10] %¹.
As regards the downstream markets, the Commission observed that the MDI segment in India is led by BASF [35-40] % followed by Wanhua [25-30]%, Dow/Sadara [15-20]% while Covestro has a share in the range of [10-15]% and that the TDI segment is led by Gujarat Narmada Valley Fertilizers & Chemicals with a share in the range of [35-40]% while Covestro has a share in the range of [15-20]% and inter alia, Mitsui [10-15]%, Wanhua and BASF are other competitors with each having market share in the range of [5-10%]².
Thus, considering the aforesaid specifics of the presence of the Parties in India and the competition landscape of the upstream and downstream markets, the Proposed Combination is not likely to confer any ability/incentive to the resulting entity to engage in foreclosure strategies in any market segment in India.
Considering the material on record, including the details provided in the Notice and the assessment of the Proposed Combination based on factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have AAEC in India in any of the relevant market(s) and therefore, the Commission hereby approves the Proposed Combination under Section 31(1) of the Act.
This order shall stand revoked if, at any time, the information provided by the Acquirers is found to be incorrect.
The information provided by the Acquirers shall be treated as confidential in terms of and subject to provisions of Section 57 of the Act.
The Secretary is directed to communicate to the Acquirers accordingly.
