INSIGHT: Evonik stumbling on way to market

18 December 2007 16:35  [Source: ICIS news]

By Dede Williams

Which way to market for EvonikFollowing German parliamentary approval of plans for a phase-out of coal mining activity by 2012, the long envisaged initial public offering (IPO) of Evonik Industries – the former RAG, including speciality chemicals subsidiary Degussa – has finally been cleared for take-off in 2008.

However, questions remain as to the route, the means of transportation and even the destination.

Original plans advanced by RAG chief Werner Muller called for a launch in the first half of 2007. In the meantime, delays caused by political squabbles over the end of coal mining, punctuated by a minor disruption from Lanxess’ intensive wooing of Degussa, have rendered the timing precarious.

Financial market turbulence now is casting doubt on whether an IPO is the best way to raise the nearly €7bn ($10bn) the foundation – which from the beginning of 2008 will hold all of Evonik‘s shares – needs to cover the former mining company’s liability for environmental damage and pay compensation to unemployed and retired miners.

The alternative plan, to sell a quarter to a third of the company to a trade or private equity investor also is looking precarious, for the same reasons.

Reports have suggested that the foundation may have had to lower projected income from a share sale of any kind, although its president, former Deutsche BP managing board chairman Wilhelm Bonse-Geuking, said at earlier this month that he believes the package can be sold for an – as yet unquantified – “reasonable price”.

A decision on how to proceed is to be made in the first quarter of 2008.  

Evonik and the foundation face a dilemma on several fronts. To raise the needed funding, the company must be appealing to the capital markets, but to ensure this appeal, it also must grow and invest in its future – a formidable task without adequate financial backing.

Several private equity funds are believed to have expressed interest in buying shares outside the stock market; however, a long-term investor has been declared to be favoured, and it seems doubtful whether private equity can fill this bill.

Private equity also could encounter difficulty raising the needed capital, due to the investment banks’ newly imposed restrictions on debt funding.

Some observers believe that the best way to raise more money is to sell the old RAG’s profitable real estate business. This has virtually no synergies with the chemicals and energy (represented by power plant operator Steag), although its revenue undoubtedly would be missed in the balance sheet.

In the current phase of Evonik’s share sale plans, no trade investors have been mooted to be on the list of possible investors. In September, Lanxess said it had bowed out of the race.

There has been speculation that Lanxess’s ambitious chairman, Axel Heitmann, could still be looking for a way to pull off a deal, but he, too, would find it hard to find enough cash – aside from the question of whether a merger of the two chemical businesses would make sense at all.

At the moment, Heitmann is said to be making eyes at another speciality chemicals target, Clariant.

($1 = €0.69)

By: Dede Williams
+44 20 8652 3214

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