Some $38 billion in debt will mature at chemical companies in the 2009-2010 timeframe, and not all those obligations will be successfully restructured. At Chemical Market Assoc. Inc.’s (CMAI; Houston) Global Petrochemical Conference (March 25-26; Hilton Americas Hotel, Houston), Alasdair Nisbet, managing director of advisory investment bank Lazard, laid out the situation faced by many petrochemical and plastics manufacturers in stark terms: trapped amidst the weakest demand in decades, frozen credit markets, and large amounts of incredibly complex debt. “There are many who are facing a brick wall,” Nisbet said.
Nisbet told the crowd his firm is currently assisting five chemical businesses with debt restructuring, and given the environment, stated plainly that, “I’m sure more companies will get into trouble.” Indeed, two companies that rank tops globally in portions of their portfolios—LyondellBasell and Chemtura—voluntarily entered into Chapter 11 bankruptcy proceedings in the first quarter, with rumors circling others.
Private equity in the form of companies like Access Industries, which purchased Basell and then melded it with Lyondell, has played a role in the creation of many of these companies and might also lead to their unraveling, according to Nisbet. “The rise of private equity changed the paradigm of investing,” Nisbet said, with the financial companies leaving many manufacturers saddled with too much debt that’s too complex.
Nisbet posited that globally, private equity has some $1 trillion in debt, with 60% of that classifiable as distressed, and a potential book loss of $300 billion looming. In spite of this, Nisbet added, “You will see private equity survive this and be an important owner in the industry,” presumably picking off battered firms or specific businesses of those companies. Nisbet is also convinced the Middle East will become a growing player in the industry, given its cash position and interest in expanding into downstream businesses, pointing to Abu Dhabi firm IPIC’s recent acquisition of Nova Chemical. —[email protected]