In a village, deep in the New Forest, four men are taking apart and putting back together a chemical empire that stretches from Texas to Cologne.
The business is Ineos, Britain’s biggest private company, the world’s third-largest chemical manufacturer, an enterprise with $47 billion (£29 billion) in sales, which was forced in June to renegotiate the lending terms over a mountain of borrowings. Ineos owes about €6.5 billion (£5.9 billion) and it has promised that it will make big repayments, the best part of €1 billion, in early 2011 and the pressure is on.
With the help of three colleagues, Jim Ratcliffe, who built and still owns a majority share of Ineos, is unstitching and restitching the components of a jigsaw puzzle of 18 businesses in 14 countries that make everything from petrol to PVC and refrigeration chemicals to plastic film for packaging.
Something must be sold but he has not made up his mind. “Under our agreement with the banks, we need to generate levels of cash which it is difficult to imagine the business doing. At some stage there has to be an asset sale,” Mr Ratcliffe said.
The total sum that must be raised is €700 million in two “bullet” repayments. He thinks that a sum of €250 million due in January 2011 is manageable “with a fair wind”, but the second tranche in July of €450 million is “quite a large slug”.
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He is now getting more sensible offers, he says, than from the scavengers who were sniffing at Ineos before the loan covenants were reset in July. In August, The Herald, a Scottish newspaper, reported that PetroChina was in talks about Grangemouth, the former BP oil refinery and petrochemical plant acquired by Ineos in 2005. Essar, the Indian conglomerate, was also said to be interested, but the latter has since made a bid for Stanlow, Shell’s refinery in Cheshire.
Meanwhile, Russian investors have been sniffing at Lavera, another refinery and petrochemical plant in the south of France acquired in the BP deal. Rosneft and TNK-BP are reported to be on the prowl for European refinery investments.
Mr Ratcliffe will not comment on the Grangemouth talks but says there are many transactions under discussion. He would prefer a partial asset sale in which Ineos carried on running the plant. “We run chemical assets very efficiently and we have interesting assets. We are half of ICI, plus BP Chemicals, plus bits of BASF and Dow — pretty high quality.”
The problem is a crippling borrowing rate of 9 per cent, imposed by banks as a price for relaxing covenants on debt to interest and asset ratios.
Mr Ratcliffe accuses the banks of opportunism, leaning on their customers’ balance sheets for support during the worst recession for 30 to 40 years, and in which Ineos’ profits halved. The interest rate means a cash cost of €580 million next year and a total charge of €650 million (including a non-cash item). In a normal year, says Mr Ratcliffe, Ineos might earn €2 billion before tax and interest but the collapse in demand for bulk chemicals flattened prices and shrank volumes.
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Next year’s target, agreed with the banks, is €1.3 billion. That depends on continuing recovery; order intake has picked up sharply and Ineos is running at 85 per cent capacity.