Global giant in the making
Salalah-based petrochemical and plastics company, Octal Holding is set to become the largest player in the world in its segment and contribute US$500 million to Oman’s export revenue. OER uncovers the story behind the making of the global leader

Three years ago, Chemlink Capital Ltd and Pound Capital Ltd, both US based private investment firms specialising in downstream petrochemicals projects, were exploring for a suitable base market for their new projects. Their search ended when their research analyst hit upon www.ociped.com, the website of the Omani Centre for Investment Promotion and Export Development (OCIPED). Soon after, Chemlink’s President Nicholas P. Barakat landed in Oman and after several rounds of talks with OCIPED, Mohammed Al Theeb, Deputy Chief Executive Officer at Salalah Free Zone Company, took him down to Salalah to convince him of the benefits of operating a profitable business from Salalah. He confirmed availability of land and utilities which would enable Octal to build its investment rationale fast track. After discussions with various ministries and other trade bodies and companies, Barakat decided to set up shop in Oman.

As a result, Octal Holding, with 70 per cent foreign investment (from Chemlink Capital and their overseas partners) and 30 per cent Omani investment (from BankMuscat, Suhail Bahwan Group, National Investment & Fund Co., Muscat Overseas, Oman Investment Company, Malatan Trading & Contracting and Oman & Emirates Investment Holding Co. SAOC and Dhofar Investment & Real Estate Services Co. LLC.), got the go-ahead from the government in May 2006. BankMuscat was also the financial advisor to the project globally. Moving at a very fast pace, the company imported the machinery from Europe and started operations in the first week of December 2006 at Salalah Free Zone. The total investment in the project was US$300 million. Fluor Corporation, the world’s largest publicly owned engineering, procurement, construction and maintenance services companies, is the technology advisor to Octal and the project manager also.

The company’s objective? Secure a 20 per cent share of the amorphous polyethylene terephthalate (APET) sheet, which in 2006 was worth US$2.25 billion and is considered one of the largest and fastest growing polymer applications. The company plans to become the world’s largest producer of APET sheet packaging and the Middle East’s largest producer of PET resins. It will be exporting primarily to the US, Europe and other markets, including the Middle East, India, China and the Far East. It already has 40 customers mostly in the US, UK and Western Europe.

Advantages of Oman
Why was Oman chosen as the location? Barakat, who is also the Managing Director of Octal Holding, responded, “We reviewed lot of other markets but selected Oman for its excellent logistics and stable environment. Salalah, in particular, has an excellent infrastructure. It enables us to bring in raw material from the other parts of Middle East, convert them and export them. Within two weeks, our products can reach anywhere in the world. Another important factor for choosing Oman was its FTA with the US and the present negotiations with the Ministry of Commerce and Industry to remove import duties on exports from Oman to EU.”

The move to develop one of the world’s fastest growing packaging companies in the Sultanate responds to the global trend for convenience food packaging and the increasing use of clear rigid plastic for consumer products and merchandising. APET’s clarity, gloss and toughness make it ideal for goods that require both protection and shelf life, and the product is completely recyclable.

Octal entered the market in December 2006 with 20,000 tonnes per year production capacity, which in September was augmented by an additional 10,000 tonnes per year. A new twin PET resin and APET sheet complex will provide a further 300,000 tonnes of APET sheet-making capacity from April 2008. The company will be looking at establishing upstream and downstream activities in Oman, beyond its current scope of activity, with the active participation of Omani companies.

Talking about competition in the global market, Barakat said, “On the PET resin side, there are many producers. The global capacity is 14 million tonnes. We will be making only 300,000 tonnes. But in terms of APET sheet, a packaging material for food and consumer products, there are not many large competitors. It is more of a cottage industry. In Europe, there are three large players. In the US, there are two. From next year, we will be five times larger than the largest PET producer in the world.”

Hi-tech product
What makes Octal so competitive? Barakat said: “Octal can tailor its product to a specific gauge, which saves money for its clients. When the gauge is held to less than 1 per cent variation, manufacturers know exactly how much packaging will be produced per tonne of APET sheet. There are other benefits, such as easier storage and higher shipping volumes. In the end, we just found a way to take an existing process and make it better.

“Our manufacturing complex is designed to address the industry’s cost and quality failures that are hampering the growth of APET. Octal is the first manufacturer to have fully integrated production from resin to sheet on one site, and to develop a base in Oman to compete worldwide.”

Octal Holding will give a major boost to Oman’s non-oil exports, especially to the US. Informs Barakat, “If you look at Central Bank of Oman’s Annual Report 2006, non-oil exports to the US from Oman in 2006 were US$40 million approximately. We will be exporting five times that to the US from next year. Overall, we will have sales of US$500 million per annum through 100 per cent exports. In addition to generation of thousands of jobs, directly or indirectly, the Salalah Port will earn significant fees, not only in terms of shipping but in handling also.

“It positions Oman as the leader in the world in a very important segment that is consumer packaging. It is a high technology-led product category. It is not easy for others to catch up fast.”

On the strategy ahead, he said, “We need to develop our infrastructure and capacities fast, otherwise we will lose the advantage. The key matrix is volume, operating leverage and margin. We need to invest more and more to build enough capacity to capture 40 per cent of the market before the competition heats up. We have 500,000 sq m. of land in Salalah, a very strong balance sheet and the backing of financially strong local and international institutions to finance the expansion of our operations. We have got to become more competitive at an accelerated pace as demand grows.”

Mohammed Hassan Al-Theeb, Deputy Chief Executive Officer of Salalah Free Zone Company, said: “Octal Holding is the first investor to set up a plant in Salalah Free Zone, and the company has committed to invest significant capital in its production facilities. This will lead to a substantial increase in non-oil exports from Oman and a rapid increase in activity at Salalah Port.

“The project is expected to create substantial direct and indirect employment. Many Omani companies will benefit from tender awards and many ancillary upstream and downstream businesses will also gain.”

AbdulRazak Ali Issa, Chief Executive, BankMuscat said: “Octal is the first project of this size in the region that is being financed on a limited recourse project finance basis.” He added: “Projects in the region tend to be either supported by government, the developer or through off-take agreements. Lenders are comfortable with the market risk for Octal based on its disciplined development approach and its clear market strategy. This should open up the financing market for similarly well structured projects.”
 

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