Dow Chemical could recoup as much as $2.5 billion (£1.7 billion) after announcing plans to sue Kuwait for breach of contract after the Middle Eastern state pulled out of a $17.4 billion joint venture with America's biggest chemical company.

Andrew Liveris, chairman and chief executive of Dow, said that he was already in talks with other companies keen to take Kuwait's share in the new division, which is to be the world's largest maker of polyethylene plastics.

At least six bidders are likely to emerge, he said, and the discussions had been fast-tracked.

Shares in the chemical company were up by $1, more than 6.5 per cent, at $16.05 at the close of trading in New York.

Kuwait's Petrochemical Industries Company (PIC), a state-owned company, dropped out of the joint venture a few days before it was due to go live last month. At the time, Kuwait blamed the falling oil price and global financial uncertainty for its reluctance to go ahead with the venture, which would have involved Dow transferring ownership of several basic plastics plants to PIC.

Mr Liveris said yesterday: “Pursuing legal options is not a decision we take lightly, especially because of the longstanding partnerships we've established in Kuwait over the past decade - but PIC is in breach of contract.”

Dow has seven operations in the Middle East, five of which are in partnership with local companies.

Mr Liveris said that the two companies had exchanged more than 1,500 documents in preparation for the new business and that he was “shocked” by PIC's change of heart. “This was completely unexpected, given the approvals already received and the behaviour, actions and words from our partners,” he said.

The collapse of the deal cast doubt over whether the American chemical company would press ahead with its $15.3 billion acquisition of Rohm & Haas, a rival, as the cash from the joint venture was to be used to pay part of the acquisition cost.

Dow must close the deal with Rohm & Haas this Saturday or, under the terms of their agreement, the $78-per-share cost will immediately begin to increase.

Mr Liveris declined to say whether the Rohm & Haas takeover would go ahead or whether he was attempting to renegotiate the terms of the deal with its rival.

He told investors that he would continue to pay the regular quarterly dividend, which had also been in doubt because of the higher anticipated costs of buying Rohm & Haas without the Kuwaiti cash.

Dow has not missed a dividend payment since 1912 and Mr Liveris has previously promised that it would not happen on his watch.

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