TRIS Rating Co., Ltd. views no immediate impact on the company and senior debenture ratings of Indorama Ventures PLC (IVL) after IVL announced it would purchase a 100% stake in Old World Industries I, Ltd. and Old World Transportation, Ltd., collectively called “Old World Chemical” (OWC), a US-based Ethylene Oxide (EO) and Ethylene Glycol (EG) producer.
On 7 February 2012, IVL announced that it will acquire a 100% stake in OWC. The transaction will cost US$795 million (Bt24,645 million) in total. Approximately a 70% of the acquisition will be financed by bank loans, while the remaining 30% will be funded by IVL’s internal cash flow. After completing the transaction, IVL will be a truly backward integrated producer in polyester value chain, as it will be integrated into both purified terephthalic acid (PTA) and monoethylene glycol (MEG). IVL’s integrated facilities could reduce the impact of volatility and place it in a better position than its competitors.
TRIS Rating said, OWC is the leading EO and EG producer in the US. OWC’s production facilities comprise 435 thousand tonnes per annum (KTA) of EO, 204 KTA of Purified EO, 358 KTA of MEG, 64 KTA of diethylene glycol (DEG), and 6.4 KTA of triethylene glycol (TEG). OWC’s plant is located in petrochemical hub in Clear Lake, Texas, USA. In 2010, OWC generated US$514 million of revenue or equivalent to 16% of IVL’s total revenue in the same period.
From TRIS Rating’s credit perspective, the acquisition is in line with IVL’s business strategy to be a world class producer in polyester value chain and to increase its production capacity to 10,000 KTA within 2015. OWC's MEG production strengthens the backward integration to IVL's polyester value chain which could improve and stabilize the profitability going forward, as OWC’s operation generated higher margin of earnings before interest, tax, depreciation and amortization (EBITDA). However, the significant increase in debt would weaken the company's financial profile. In addition, the fragile European economy and volatile nature of petrochemical industry could incur negative impact to the credit profile, if gone worse. However, IVL has well managed the liquidity position and TRIS Rating expects the company to maintain ample liquidity at all time to cushion against any down cycle.
IVL is a leading producer in polyester value chain. Its production facilities are located across three continents: Asia, Europe, and North America. IVL’s production currently comprises 2,452 KTA of PTA, 3,582 KTA of polyethylene terephthalate (PET), 600 KTA of polyester fiber, 229 KTA of bi/mono-component fiber, and 83 KTA of recycling polyester. In the first nine months of 2011, IVL recorded a revenue of Bt142,762 million.
TRIS Rating currently rates IVL’s company and senior debenture ratings at “A+” with “stable” outlook. -- End
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