Mexico Orbia considers divestment of vinyls business

Author: Al Greenwood

2020/01/13

HOUSTON (ICIS)--Orbia is considering a divestment of its Vinyl business in addition to forming an alliance or pursuing some other strategic alternatives for the group, the Mexican polyvinyl chloride (PVC) producer said in a regulatory filing.

Orbia made the filing with the Mexican Stock Exchange (BMV) in response to an article from Bloomberg.

Possible buyers include Apollo Management, INEOS and Westlake Chemical, according to analysts, who quoted the Bloomberg article.

The deal is worth up to $4bn, according to Grupo Financiero Monex, a Mexican financial firm.

Westlake declined to comment.

INEOS did not immediately respond to a request for comment made to its office in the UK. Apollo did not immediately respond to a request for comment.

Orbia did not immediately respond to a request for additional comment.

Were Westlake to successfully submit a bid, it would add 2.5m tonnes/year of vinyl capacity to the company, according to Alembic Global Advisors, a US-based analyst firm.

Alembic estimated that the reported bid price from Bloomberg stands at a multiple of 7.3x in regards to Vestolit's third-quarter earnings before interest, tax, depreciation and amortisation (EBITDA). If that's the case, then it could boost Westlake's earnings/share from the first year.

It would bring the company's net debt/EBITDA ratio to 3.4x, Alembic said.

The Vinyl business represents 32.6% of the sales and 30.0% of the EBITDA of Orbia during the past 12 months, Monex said in a research note.

The Vinyl business includes Vestolit and AlphaGary

In addition to the company's Vinyl business, Orbia also owns the Fluent business group, which makes pipe. Fluent includes Wavin, Amanco, Dura-Line and Netafim.

Orbia's Fluor business mines fluorite and produces fluorochemicals.

The following table shows 2018 sales of the three businesses. Figures are in millions of dollars.

Vinyl 2,460
Fluent 4,077
Fluor 837
Total 7,374

Prior to the report of the possible sale, Orbia's stock was trading at peso (Ps) 40.60. It has since risen to Ps48.23.

Orbia was previously known as Mexichem. It owns emulsion and suspension PVC plants in Mexico, Colombia and the US.

PVC PRICING TRENDS
In an unexpected move, Orbia rolled over January prices from December for its domestic and export sales in order to undercut US imports in Mexico and increase exports to South America, thus securing inventory reduction.

The initiative made Mexico’s PVC competitive, as US January offers of pipe-grade resin in Mexico are showing a $35/tonne increase, while US offers in South America show a $30/tonne increase.

Export prices for Mexican pipe grade PVC have been flat since November at $740/tonne FOB (free on board) Altamira, rendering values of about $810-830/tonne CFR (cost and freight) main port South America.

Mexico’s inventories levels have since fallen, and February price discussions are now being held at an increase for domestic and export markets.

Additional reporting by Luly Stephens