INEOS seeks waivers as inventory losses mount

17 November 2008 15:46  [Source: ICIS news]

LONDON (ICIS news)--INEOS has sought covenant waivers from its banks until the end of the first quarter of 2009 following a collapse in petrochemical market demand and an expected €560m inventory loss in the fourth quarter, it said on Monday.

The waivers relate mainly to the ratio of the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) to debt which has been badly hit by customer destocking and the inventory loss in the current quarter.

It called the recent fall in demand “unprecedented” as customers destocked and closed plants. Short-term visibility was “extremely limited” it added.

INEOS’ lead bankers, Barclays Capital and Merrill Lynch, had approved the bank covenant waivers, INEOS said as it announced third-quarter financial results that saw EBITDA fall 20% from the year-earlier period to €402m.

A company spokesman said that INEOS was actively seeking the approval of other banks for convent waivers. INEOS debt has been syndicated to a further 400 banks.  

Further near-term actions to improve the defensive qualities of the business include €200m of additional cost savings and a cut in capital spending for 2009 to €250m from €600m in 2008, INEOS said.

The highly leveraged company added that it expected full-year EBITDA to be in the €1.7bn-1.8bn range before annual inventory holding losses of €400m and exceptional “events” of €180m.

Fixed cost savings of €60m were expected as early as the fourth quarter.

INEOS said it remained profitable and cash-generative and that liquidity was expected to remain good as lower prices lead to an unwinding of working capital.

“The actions taken to reduce the cost base and invest in efficient plants over the past few years mean that each individual business and the group as a whole can produce significant profits and cashflows even at the bottom of the cycle,” said chief financial officer John Reece.

“In recent weeks, it has become clear that the entire industry is now facing a period of unprecedented market turmoil caused by the declining price environment and driven by general macro-economic uncertainty.

"This is resulting in severe customer destocking. While this reduces short-term visibility, we believe that the picture will become much clearer at the end of Q1 2009,” he added.

($1 = €0.80)

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