Commentary: Fingers crossed that the bailout works

Industry relies on availability of debt to function

13 October 2008 00:00  [Source: ICB]

We have yet to see if the bailout plans announced by panicked governments around the globe will succeed in thawing banks' unwillingness to lend. We had better hope they do: the chemical industry, along with all industrial sectors, relies heavily on the availability of short and long-term debt to function.

This leveraging is normal, even for well-funded companies, as a tool to fuel growth. Yet already there are signs that this lack of liquidity is having a direct impact on the chemical industry. AkzoNobel revealed last week it is postponing the remaining €1.6bn ($2.2bn) of its €3bn share buyback as it struggles to refinance €1.8bn of debt over the next 18 months. The Dutch chemical group says the capital markets are closed.

Meanwhile, at the recent European Petrochemical Association meeting in Monaco, traders revealed that the near-collapse of Europe's Fortis bank was causing problems raising credit lines - essential to their businesses.

The world of merger and acquisition is suffering. German manufacturer Schott Solar has shelved its initial public offering (IPO). And in Poland there are questions about the viability of an IPO for nitrogen producer Zaklady Azotowe Kedzierzyn (see page 9).

UK firms Lucite and INEOS have also suffered downgrades from ratings agency Moody's Investors Service.

These are some examples now in the public domain. We can only imagine how much more widespread this has become. The impact on investment plans and the ability to function normally is just starting to become apparent.

Even in the midst of this malaise, however, we can celebrate our industry's successes. This week we unveil the winners of the ICIS Innovation Awards. As you will see, forward-thinking companies are innovating now to ensure future success.

Do you agree or disagree? Email the deputy editor, Will Beacham

By: Will Beacham
+44 20 8652 3214

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