According to Bloomberg, based on people familiar with the matter, SABIC is exploring an acquisition of OCI NV’s methanol assets for as much USD4bn, though at this stage they appear to be only preliminary discussions and it may not lead to an agreement. OCI NV put out a press release simply stating “it has received inbound interest in its methanol group assets” with no further comment, which at least confirms that they have received interest from someone. We have tried to get in touch with OCI NV and SABIC IR to get any comments or confirmation, but OCI declined to comment beyond the press release and SABIC has yet to respond. 
 
Who could be getting the better end of the potential deal? We think OCI, but it is not necessarily a bad deal for SABIC
It remains unclear whether the USD4bn being referred to in the article is equity or enterprise value, but in either case, it would provide upside to our valuations of OCI’s methanol assets. We value the proportionate EV for OCI’s methanol assets at USD3.4bn (implying 17% premium if sold for USD4bn), while we value those assets at cUSD2.7bn (implying 50% premium) on an equity basis. 
 
At a USD4bn EV, this would value the methanol assets at a 2018 EV/EBITDA of 17.7x. This is obviously pricey, but to be fair, 2018 EBITDA does not include full operations of the Natgasoline assets (started in 2Q18 and had a shutdown in 4Q) and the European assets generated losses due to abnormally high gas prices in Europe for most of 2018. For 2019, our forecasts imply this would value the assets at 10.5x EV/EBITDA – much more reasonable and on a normalised basis, our numbers imply OCI’s methanol assets could generate a proportionate EBITDA of cUSD450mn (based on methanol price of USD350/t), implying an EV/EBITDA of c9x, which from SABIC’s perspective is reasonable, especially as SABIC can likely add more value to the assets given its massive global distribution network and its extensive operating experience with methanol assets. 
 
If the US4bn is equity however, this would imply a normalised P/E of c20x on our numbers, which is quite pricey for methanol assets, in our view. As such, we speculate the USD4bn likely refers to EV, but there is no way to know for sure at this stage. 
 
Overall, it is unclear at this point whether the report is true and even if it is true, there would still be many hurdles before closing the deal, including any potential regulatory ones (though we do not expect this to be an issue since SABIC does not own any operating US methanol assets at the time being). If the deal does close at this valuation, that would provide upside to OCI’s current market cap, in our view, as well as our valuation (+7% if EV and +19% if equity). With that said, its more of a mixed bag for SABIC. If the USD4bn valuation refers to EV, then we think the price is reasonable and could be positive for SABIC when one takes into account the potential value SABIC could add to the assets and as this would give them their first direct exposure to the US methanol market. If the USD4bn refers to equity however, we think the valuation would start to look a little stretched from SABIC’s perspective. 
 
We currently have  a Buy rating for OCI NV and a Neutral rating for SABIC. (Bloomberg, Yousef Husseini)
 
SABIC: SAR122.60 as of 4 Mar. 2019, Rating: Neutral, TP: SAR125.00/share, MCap: USD98,080mn, SABIC AB/2010.SE
OCI NV: EUR21.40 as of 4 Mar. 2019, Rating: Buy, TP: EUR29.00/share, MCap: USD5,081mn, OCI NA/OCI.AS