UpdateINEOS faces 15 days of tough talks

17 November 2008 17:56  [Source: ICIS news]

By Nigel Davis

(adds detail throughout)

INEOS asks for waiver on bank covenantsLONDON (ICIS news)--INEOS has entered a 15-day period in which banks holding €5bn ($6.25bn) of the company’s debt must decide whether to accept a request for a waiver of loan covenants, it said on Monday.

Massive customer destocking had forced the broad-based petrochemicals and inorganic chemicals maker to approach its banks to ask them to waiver rather than reset covenants entered into when it bought the former BP-owned Innovene olefins and derivatives business in 2005.

The waivers relate to the ratio of the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) to its debt.

INEOS’ total debt of €7.3bn includes a tranche of high-yield bonds that are not affected by the proposed agreements.

INEOS said on Monday that it expected an inventory holding loss of €560m in the fourth quarter related to the collapse in the price of oil and the dramatic drop-off in demand for chemicals.

The loss would hit EBITDA even though all its businesses were positioned to be profitable and cash generative at “normal” bottom of the cycle conditions, it said.

“We have this forward looking fog,” Tom Crotty, CEO of the newly created European olefins and polymers business, said in a telephone interview.

“We don’t want to reset covenants now but are asking for a waiver for two quarters.”

INEOS hopes to have better visibility across the business at the end of the first quarter of 2009, Crotty said, and has agreed to redraw its business plan for the start of April.

In the meantime it has implemented further cutbacks and said it will reduce capital spending to €250m next year from €600m in 2008.

Two thirds of 230 banks with the right to vote on the INEOS syndicated debt must vote in favour of the company’s proposal for it to be successful.

INEOS said on Monday that the lead bankers Barclays Capital and Merrill Lynch had approved the bank covenant waivers.

INEOS is asking that its bank to waiver covenants for the next two quarters, conditional on the submission of its new business plan.

The company has agreed to pay consenting lenders a fee of 50 basis points on their loan amount and increase the applicable interest margins by between 100 and 125 basis points.

Crotty said INEOS alongside the rest of the chemicals industry was looking for the floor in the current cycle but that operating conditions remained difficult.

“There are one or two signs that PVC (polyvinyl chloride) may be bottoming out,” he said. However, there was still little indication of what was a decline in fundamental demand and what was de-stocking.

INEOS was running its production units - from crackers to PVC and polyolefins plants - at an operating rate of about 75%, he added.

($1 = €0.80)

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By: Nigel Davis
+44 20 8652 3214



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