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Dow Chemical of the US has been awarded $2.16bn in damages from the Petrochemical Industries Co of Kuwait by an arbitration court over the breakdown of a planned joint venture between the two companies in 2008.
The award, which Dow said was final and binding, brings to an end one of the more dramatic stories arising from the financial crisis.
Dow said it would put the money towards reducing its net debt, which was $16.2bn at the end of last year, funding its capital spending and paying dividends.
Its shares were up 2.8 per cent at $31.37 late Thursday afternoon in New York.
Dow and PIC, a subsidiary of the state-owned Kuwait Petroleum Corporation, had agreed to resolve contract disputes through the arbitration court of the International Chamber of Commerce, a panel of leading commercial lawyers. It was this body that awarded Dow $2.16bn, plus interest and costs.
In a statement on Thursday, Andrew Liveris, Dow’s chief executive, said: “This outcome brings resolution and closure to the issue. We remain focused on continuing to move forward with our transformation and profitable business partnerships, both in Kuwait and around the world.”
Dow has been working with Kuwaiti companies for 40 years and still has four continuing joint ventures with the country.
The roots of the dispute go back to an agreement that Dow signed with PIC in December 2008 to set up a joint venture valued at $17.4bn, to be known as K-Dow.
The deal involved Dow handing over chemical plants and other assets to the venture, in exchange for about $9bn in cash that it planned to use to fund the $15bn acquisition of Rohm & Haas, a speciality chemicals company.
However, a group of Kuwaiti lawmakers opposed the investment as the global financial crisis took a grip and the country’s finances came under scrutiny. Oil prices had slumped to less than $40 a barrel compared with a record $147 in July that year.
A cabinet statement at the time asked the supreme petroleum council “to take the necessary measures to cancel the contract … within a sound legal framework while safeguarding the state’s rights and interests”.
At the end of the year PIC pulled out of the deal.
After an attempt to delay the Rohm & Haas deal, Dow went ahead with it in March 2009, putting the company under severe financial strain. The previous month, under pressure from the global downturn, it had been forced into its first dividend cut for 97 years.
Mr Liveris told the Financial Times last year that it had been the most tense period during his time at the head of the company.
As the global chemicals industry has recovered, Dow has been able to pay down some of the debt it took on for the R&H deal, which reached almost 55 per cent of total capital in 2009 but has fallen to about 41 per cent today.
Analysts say the failure of the K-Dow plan after political pressure remains one of the reasons why international companies are wary of making investments in Kuwait.
The Kuwaiti parliament has more powers than its Gulf counterparts and its members commonly question how the government is spending its money.
When the joint venture came under pressure from lawmakers in December 2008, Sheikh Nasser Mohammed Al-Sabah, then prime minister, was threatened by a grilling in parliament that could have toppled him.
He was eventually replaced last year after a corruption scandal that also engulfed his cabinet.
A new Islamist-dominated parliament swept to power earlier this year and is attempting to tackle financial corruption within the system.