ICIS Chemical Business' Joseph Chang presentation to the Societe/Racemics meeting in New York - Feb...
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Transcript of ICIS Chemical Business' Joseph Chang presentation to the Societe/Racemics meeting in New York - Feb...
After the Crisis: What’s Next?Chemical Market Outlook for 2010
Joseph ChangGlobal Editor
Societe de Chimie Industrielle, New YorkFebruary 17, 2010
V- or W-shaped Recovery? The New Volkswagen (VW) Syndrome
*Communicatrix**Intimate Strangers – unseen life on earth by Cynthia Needham (about microbes)
“Volkswagen Syndrome”
“Yellow Volkswagen Syndrome” = bringing something to mind all of a sudden brings it into your field of vision*
“Volkswagen Syndrome” = when scientists make assumptions about similarity based only on appearance**
1946 1979
ICIS Petrochemical Index
The OECD CLI + 6 and Global Industrial Production
% Y/Y Change (3MMA)
Source: OECD, various national statistical agencies, ACC analysis
Economic Outlook: Pros and Cons
Pros Global economic recovery, led by BRIC countries Global industrial production turning up Low interest rates, recovering financing market Recovering global equity markets Q4 earnings show recovery
Cons High unemployment rates Potential looming commercial real estate defaults Sovereign debt crisis in Greece China putting the brakes on credit expansion
Q4 2008 EPS Q4 2009 EPSVolumes
YoY
Dow Chemical ($0.63) $0.18 +10%
DuPont ($0.28) $0.44 +10%
Eastman Chemical $0.05 $1.14 +12%
PPG Industries $0.41 $0.86 ---
Celanese ($0.40) $0.50 +16%
Source: Companies
Earnings and Volume Trends
Majors/Diversified 2009 EPS E2010 EPS % Change Stock price* P/E (2010)
Dow Chemical $0.59 $1.48 +151% $27.79 18.8x
DuPont $2.02 $2.35 +16% $32.47 13.8x
Celanese $1.69 $2.76 +63% $29.94 10.8x
Eastman Chemical $2.54 $3.49 +37% $57.86 16.6x
Specialties E2009 EPS E2010 EPS % Change Stock price* P/E (2010)
Nalco $0.89 $1.36 +53% $21.98 16.2x
Cytec Industries $1.32 $2.21 +67% $37.62 17.0x
PPG Industries $2.93 $3.86 +32% $59.16 15.8x
FMC $4.15 $4.62 +11% $54.91 11.9x
Albemarle $1.90 $2.62 +38% $35.32 13.5x
Arch Chemical $1.86 $2.00 +8% $27.99 14.0x
Lubrizol $7.55 $7.78 +3% $71.62 9.2x
AVERAGE 14.3x
*As of the close of February 9, 2010Source: Yahoo! Finance, ICIS Chemical Business
Wall Street Crystal Ball 2010
A Tale of Two Cities
Out of 70 North American companies under coverage by Moody’s, 2/3rds are in the high-yield (junk) category (under BBB-)
S&P ratings downgrades outnumbered upgrades 28-6 in 2009
30 out of 65 companies rated by S&P at in the B to CCC categories – highly leveraged!
North American chemical industry credit quality
Kicking the Debt Ball Down the Road
Company LBO vintage Debt/EBITDA (LTM)
SABIC Innovative Plastics 2007 9.9x
Cognis 2004 9.0x
Hexion Specialty Chemicals 2004 8.8x
Momentive Performance Materials 2006 8.7x
PQ Corp. 2007 8.0x
MacDermid 2007 7.2x
LyondellBasell Industries 2007 7.0x
Brenntag 2004 6.4x
Kraton Polymers 2003 5.2x
INEOS Group 2005 4.8x
Source: Standard & Poor’s, stats from 2008
Vintages Gone Bad
Company Rating
Monsanto A+, Stable
Air Products A, Stable
Praxair A, Stable
Sigma-Aldrich A, Stable
Ecolab A, Stable
DuPont A, Negative
Sherwin-Williams A-, Positive
PotashCorp A-, Negative
FMC BBB+, Stable
Cabot BBB+, Stable
PPG Industries BBB+, Negative
Grade A Credits
Source: Standard & Poor’s
Financing Market: Haves and Have-nots
Investment-grade firms: Can raise money on bond market at decent rates
Junk-rated firms: Mostly frozen out of the bond market.
Refinancing often requires renegotiating with lenders
Financing Market ThawingDebt Issuance 2009 Through Q3
January Lubrizol issues $500m in 10-year notes with 8.875% coupon –
replaces 4.625% notes
July Cytec issues $250m of notes due 2017 at 8.95% – some
proceeds used to repay 5.5% notes
August Olin issues $150m in notes at 8.875% Air Products issues $400m in notes at 4.375% Praxair issues $450m in notes at 4.5% Dow Chemical issues $2.7bn in various debt instruments
September Cabot issues $250m in notes at 5% Airgas issues $400m in notes at 4.5% PotashCorp issues $1bn in notes at 3.75% to 4.875%
Common denominator – all investment-grade companies!
Junk Rising
October Solutia issues $400m in notes at 8.75% NOVA (owned by IPIC) issues $700m in notes at
8.375% to 8.625%
November Koppers issues $300m in notes at 7.875%
December: Georgia Gulf issues $500m in notes at 9%
Mergers & Acquisitions – Back to the Table in 2010
M&A in the Works
Air Products launches hostile $5.1bn bid for Airgas
Braskem to buy Sunoco Chemicals for $350m Reliance initial bid for LyondellBasell (latest
estimated at $13.5bn) shot down as target looks to restructure
Dow’s Styron business for sale; company pursuing “asset light” strategy for basic chemicals and plastics
Mexichem buys INEOS Fluor, with operations in North America and Europe
Chemtura’s PVC additives business sold to SK Capital; another could be in progress
South Korea’s Lotte Chemical buys Artenius UK
Joseph ChangGlobal Editor
360 Park Avenue SouthNew York, NY 10010
(212) [email protected]
Thank you!