The European Commission has launched an in-depth investigation into Abu Dhabi National Oil Company's (ADNOC) proposed €12 billion acquisition of German chemicals firm Covestro, marking a significant test case for the EU's new foreign subsidy regulations.
The probe centers on preliminary concerns that foreign subsidies granted by the United Arab Emirates could distort the EU internal market, according to the Commission's official statement. Specifically under scrutiny are an "unlimited guarantee" from the UAE government and a potential capital injection from ADNOC into Covestro, both of which regulators argue may have given ADNOC an unfair edge over competing bidders.
Regulatory Concerns Over State Support
The Commission contends these benefits might have allowed ADNOC to offer a purchase price and terms that wouldn't typically be viable for unsubsidised investors, raising fears of unfair competition within the bloc. This investigation operates under the Foreign Subsidies Regulation (FSR), which came into force just over a year ago and has been primarily used to investigate Chinese investments in rail and clean energy sectors.
While the deal had earlier passed the EU's traditional merger control process, sources told Reuters that ADNOC is reportedly on track to secure unconditional EU antitrust approval, with the European Commission expected to decide by May 12. The regulators see no competition issues due to the lack of overlap between ADNOC and Covestro's operations.
ADNOC's Response and Strategic Vision
ADNOC has contested the preliminary findings while expressing respect for the European Commission's process. "While we respect the European Commission's process, we contest the preliminary findings of the Commission and are confident that when the facts are fully examined, there will be no reason to hold up clearance of a transaction that will add great value for all stakeholders and stimulate European industry," the company stated.
The acquisition represents ADNOC's largest-ever deal and a major milestone in its strategy to pivot beyond crude oil into downstream and advanced materials. The transaction will place Covestro under the wing of XRG, ADNOC's international investment arm, with XRG becoming the majority shareholder upon completion.
Broader Implications for Gulf Investments
This case could serve as a landmark moment for UAE-based firms eyeing strategic European assets, potentially shaping how future cross-border deals are structured and scrutinized. The investigation reflects rising European caution toward major acquisitions by state-backed companies from the Gulf and beyond.
This isn't the first time EU regulators have taken issue with UAE state-linked funding. In 2023, Emirates Telecommunications (e&) had to alter terms of its €2.2 billion deal for PPF Telecom assets by dropping an unlimited state guarantee to receive EU approval.
Covestro's Strategic Value
Covestro manufactures plastics and chemicals used in cars, buildings, and electronics, representing a strategic entry point for ADNOC into high-performance polymers used in everything from smartphones to electric vehicles. The company operates globally with over 18,000 employees worldwide and serves major customers in automotive, electronics, and construction sectors.
Despite projecting a weaker 2025 and cutting its core profit outlook, Covestro would gain both financial firepower and long-term security under ADNOC's backing. The deal has already cleared regulators in South Africa and India with no remedies required.
If the Commission concludes that the deal breaches the regulation, it could force ADNOC to offer significant concessions or even block the acquisition entirely. A final decision under the foreign subsidy investigation is expected by December 2, 2025, while the broader deal is anticipated to close in the second half of 2025 if approved.
