PETROCHEMICALS
Financial crisis: merger of Hexion and Huntsman still touch and go / Ineos and LyondellBasell under pressure? / Companies deny media reports
The global financial crisis has led the markets and media to continue to take an increasingly critical view of the financing of major M&A deals in the petrochemicals and plastics sectors. Some companies already seem to be regretting transactions that appeared viable when funding was more freely available. A case in point is the merger of Hexion (Columbus, Ohio / USA; www.hexion.com) with Huntsman (Salt Lake City, Utah / USA; www.huntsman.com). By contrast, the financing of Ineos (Lyndhurst / UK; www.ineos.com) and LyondellBasell (Rotterdam / The Netherlands; www.lyondellbasell.com) still appears sound despite all rumours to the contrary.
The threat that Hexion’s acquisition of Huntsman will come undone is continuing to produce an almost daily stream of news. Since PIE’s last report on this transaction – see Plasteurope.com of 13.10.2008 – a number of courts have confirmed Huntsman’s position. However, two of the banks involved in financing the deal – Credit Suisse and Deutsche Bank – have announced that they are withdrawing from the syndicate. A report commissioned by Huntsman to show that the merged corporation would not be insolvent – the official reason given for the withdrawal – has not had any impact. Hexion is now looking for new investors. At the same time, the terms of the deal are evidently being renegotiated. However, it seems less certain than ever whether the deal will come off.
In the last week of October the UK’s “Times online” ran a report on a bond issued by Ineos and the bonds issued by Access Industries to finance the LyondellBasell merger. The bond placed by Ineos for around EUR 3 bn to fund the acquisition of the BP spin-off Innovene in 2006 – see Plasteurope.com of 02.02.2006 – was the biggest ever high-yielder issued in Europe. It is now only worth 31% of its original value. Trading volumes are low and brokers have regarded it as high-risk "distressed debt” for some time, so the value is purely nominal. The bond does not mature until 2015.
Nevertheless, as Ineos points out in a recent statement, all interest payments have been met punctually and in full. The company has reduced debt by over EUR 1 bn in the past three years and has adequate liquidity. Ineos reports that it had cash balances of EUR 1.3 bn on 30 September 2008. It expects all segments to operate profitably even at the bottom of the chemicals cycle. However, in the current market priority is evidently being given to generating cash and cutting costs. The recent agreement to divest Ineos Vinyls Italia – see Plasteurope.com of 10.11.2008 – may well be related to this.
The LyondellBasell merger was also financed by issuing bonds – see Plasteurope.com of 19.07.2007 – which are currently trading at only 37% of their issue price. Since the financial crisis has clipped the company’s scope since last year, there has been speculation for some time that it has shelved its plans – never official – to acquire BASF’s styrenics business (see Plasteurope.com of 30.10.2008).
Times online reports that “credit concerns are dogging LyondellBasell" following the downgrading of its credit rating by Standard & Poor’s. Its endeavours to refinance the merger this year have apparently failed. However, LyondellBasell's CFO Alan Bigman told Plasteurope.com that the company has "an appropriate and well-structured capital base with very little short-term debt”. Moreover, the group has apparently “never sought to refinance the debt incurred to finance the acquisition”. PIE's research shows that, so far, all interest on the bonds has been paid punctually. They mature in 2016.
The threat that Hexion’s acquisition of Huntsman will come undone is continuing to produce an almost daily stream of news. Since PIE’s last report on this transaction – see Plasteurope.com of 13.10.2008 – a number of courts have confirmed Huntsman’s position. However, two of the banks involved in financing the deal – Credit Suisse and Deutsche Bank – have announced that they are withdrawing from the syndicate. A report commissioned by Huntsman to show that the merged corporation would not be insolvent – the official reason given for the withdrawal – has not had any impact. Hexion is now looking for new investors. At the same time, the terms of the deal are evidently being renegotiated. However, it seems less certain than ever whether the deal will come off.
In the last week of October the UK’s “Times online” ran a report on a bond issued by Ineos and the bonds issued by Access Industries to finance the LyondellBasell merger. The bond placed by Ineos for around EUR 3 bn to fund the acquisition of the BP spin-off Innovene in 2006 – see Plasteurope.com of 02.02.2006 – was the biggest ever high-yielder issued in Europe. It is now only worth 31% of its original value. Trading volumes are low and brokers have regarded it as high-risk "distressed debt” for some time, so the value is purely nominal. The bond does not mature until 2015.
Nevertheless, as Ineos points out in a recent statement, all interest payments have been met punctually and in full. The company has reduced debt by over EUR 1 bn in the past three years and has adequate liquidity. Ineos reports that it had cash balances of EUR 1.3 bn on 30 September 2008. It expects all segments to operate profitably even at the bottom of the chemicals cycle. However, in the current market priority is evidently being given to generating cash and cutting costs. The recent agreement to divest Ineos Vinyls Italia – see Plasteurope.com of 10.11.2008 – may well be related to this.
The LyondellBasell merger was also financed by issuing bonds – see Plasteurope.com of 19.07.2007 – which are currently trading at only 37% of their issue price. Since the financial crisis has clipped the company’s scope since last year, there has been speculation for some time that it has shelved its plans – never official – to acquire BASF’s styrenics business (see Plasteurope.com of 30.10.2008).
Times online reports that “credit concerns are dogging LyondellBasell" following the downgrading of its credit rating by Standard & Poor’s. Its endeavours to refinance the merger this year have apparently failed. However, LyondellBasell's CFO Alan Bigman told Plasteurope.com that the company has "an appropriate and well-structured capital base with very little short-term debt”. Moreover, the group has apparently “never sought to refinance the debt incurred to finance the acquisition”. PIE's research shows that, so far, all interest on the bonds has been paid punctually. They mature in 2016.
10.11.2008 Plasteurope.com [212175]
Published on 10.11.2008