With the Kuwaiti government having pulled out of a $17.4-billion petrochemical joint venture with Dow Chemicals, the US company is reported to be straining to keep its $15-billion takeover of rival Rohm & Haas from collapsing.

The project was to have been executed through a 50:50 joint venture company, K-Dow Petrochemicals, for which Kuwait had already granted its approval. (See: Kuwait scraps $17-billion Dow deal)

Dow Chemicals had agreed in July to acquire Rohm & Haas for $78 per share, in a move aimed at broadening its specialty product offerings. In case Dow backs out of the deal, it would have to shell out $750 million as a termination fee to Rohm & Haas.

The Kuwaiti decision has choked off around $9 billion in financing that Dow Chemicals had planned to use to part finance the Rohm deal. Accoding to the UK-based Financial Times cited unidentified sources as saying that Dow Chemicals still had an option of tapping into a $13-billion bridge loan for the takeover.

The newspaper also said that the company might try and renegotiate the price of the deal to factor in the recent drop in Rohm's share price, while saying that both Dow and Rohm refused to comment.

Stock prices of both Dow Chemical and Rohm & Haas have plummeted over 16 per cent at the start of the week as a result of Kuwait's decision. Rohm's share price came down to around $53.34. Reports quoted analysts as saying that Dow could find the going tough even it it decides to proceed with the acquisition, as it would have to take on a huge load of debt. Consequently, they say the pressure is on Dow to renegotiate the price of the deal or walk away.

Dow was reported to be planning to use some of the funds from the Kuwait joint venture to pay off a one-year, $13 billion bridge loan that had been negotiated by a consortium of banks led by Citigroup, Merrill Lynch and Morgan Stanley. The consortium was also reported to be advising the company on the Rohm & Haas acquisition.

In a statement, Rohm & Haas said completion of Dow's Kuwait joint venture was not a precondition for the acquisition, and that it was working towards completing the deal by early 2009.

Kuwait and Dow lowered the value of the joint-venture by more than 8 per cent to $17.4 billion earlier this month after the government asked Dow's Kuwaiti joint venture partner, Kuwait Petroleum Corporation and Petrochemicals Industries Company , to cut its contribution in view of a sharp slowdown in global demand.

This deal was conceived a year ago in December 2007 and was then considered a positive move with shares of Dow Chemical jumping more than 6 per cent.

Kuwait Petroleum and Dow had agreed to jointly manufacture marketed polyethylene (PE), ethyleneamines, ethanolamines, polypropylene (PP), and polycarbonate and related licensing and catalyst technologies. PE and PP comprise more than half of world polymer demand. PE is the most widely used of all plastics and can be found in everyday products from food packaging, milk jugs and plastic containers to pipes and liners. PP is a versatile plastic used in fibers, packaging films, non-wovens, durable goods, automotive parts, and consumer applications.

Kuwait decide to scrap the joint venture due to the global financial crisis. Reports said that the move would send chills down the spine of foreign investors as far as investment into Kuwait was concerned, while pointing out that the Gulf state could well reconsider its position on a number of other industrial projects in the midst of falling oil prices.

Reports quoted economists as saying that the cancellation of the Dow joint venture sends out a message that Kuwait is not conducive for foreign companies to do business, even as the OPEC member state said that the cancellation was done as the project was no longer viable in light of the global crisis.

Commentators also pointed out that just hours after announcing the cancellation of the Dow joint venture, the same group of Kuwait's deputies who led the charge against the deal renewed calls to also halt a $15-billion project to build the country's fourth refinery.

Kuwait had awarded work on the giant 615,000-barrels per day Al-Zour refinery to Japanese, South Korean and US firms in May, though final deals remain to be signed in the wake of members of parliament having launched an investigation into whether the tender contained violations.

Kuwait, despite being considerably oil rich and accounting for a tenth of global crude reserves, has been stunned by the economic crisis. It had to intervene to save its fourth-largest lender, and its sovereign wealth fund has launched a 1.5-billion dinar fund to steady the stock market.

Kuwait's energy sector contributes over 40 per cent to its gross domestic product, as compared to three per cent for Dubai.

With oil prices having sunk below the $50 per barrel mark, the Gulf state is now working to replicate the success of its neighbouring Emirates like Dubai and Bahrain that have successfully transformed themselves into financial hubs, popular tourist destinations and hosts of sports and cultural events.