KUWAIT--Dow Chemical (DOW) could in theory pocket hefty compensation for a scrapped joint venture in Kuwait, but the U.S. group would first have to prove in court that the Gulf state broke contract terms, oil sector sources said.
The OPEC member cancelled the $17.4 billion petrochemical venture with Dow on Sunday, less than a month after it signed
the deal. State-run Petrochemical Industries Co was to have paid Dow $7.5 billion for its stake in the project.
To claim a break-up fee, "Dow would have to prove in court that it had been damaged, and Kuwait's compensation would be
limited in that case to a maximum of $2.5 billion," a Kuwaiti oil official told Reuters on condition of anonymity.
Another oil official with knowledge of the deal confirmed this, adding that it was unclear whether Dow would take any
legal action against the world's seventh-largest oil exporter.
"The $2.5 billion is a cap for compensation in case Dow starts legal action and wins a court ruling proving we violated
the agreement, only then," the official said.
One of the officials said Dow and Kuwait were in dispute over whether the Gulf Arab state had been entitled to cancel the
deal shortly before its original start of January 1.
But analysts said they thought it was unlikely the company would chase a claim from Kuwait because it wanted to maintain
friendly business relations with Gulf states in what remains one of the world's fastest-growing regions.
Shares in Dow Chemical, which was not immediately available for comment, fell 19 percent on Monday as analysts said the
scrapping of the deal could endanger the company's planned $15.3 billion acquisition of specialty chemical manufacturer Rohm & Haas (ROH). However, the stock recouped 3 percent in premarket trade on Tuesday after the Financial Times quoted unnamed sources as saying Dow would still be able to tap a $13 billion bridge loan to pay for the takeover despite the loss of revenue from Kuwait.
The Gulf Arab state said it cancelled the project, which had met opposition in parliament, because the worsening of the
financial crisis made it no longer viable.
Dow said on Sunday it was "in the process of evaluating its options pursuant to the joint venture formation agreement." It
did not elaborate.
Analysts said Dow was under pressure to renegotiate the price of the Rohm deal -- which itself carries a termination fee
of $750 million -- to reflect the recent drop in the target company's share price. Both Dow and Rohm declined to comment.
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