Ineos Group plans to seek approval to breach its banking covenants over the next two quarters while it addresses the impact of a major stock loss on oil and a sharp downturn in demand across its polymer portfolio.
However, the Lyndhurst, England-based company stressed that its liquidity remains sound with nearly 2 billion euros ($2.54 billion) at its disposal.
The firm has already won approval for the move from senior lenders Barclays Capital and Merrill Lynch and will be asking the banks to which the loans have been syndicated to give the waiver the go-ahead during the next two weeks, said Tom Crotty, chief executive officer of Ineos' olefins and polymers business.
The loans, totaling 7.3 billion euros ($9.25 billion), including some long-term bonds, are linked to quarterly profits at a specific ratio, which are being exceeded by the need to revalue 10 million barrels of oil Ineos bought before the price collapse.
``Oil has fallen from $140 to $55 a barrel resulting in a short-term loss, not a cash loss,'' Crotty explained.
Ineos also is facing a downturn of up to 30 percent across the plastics industry, as ``everything is reeling from a drop-off in demand'', he said. But he remains confident that the company will post a 1 billion euro ($1.27 billion) profit this year, after the impact of the stock loss and exceptional charges.
The company has cut its fixed costs by 140 million euros ($177.3 million) this year and has plans to cut another 200 million euros ($253.3 million). Capital expenditures are being reduced from 600 million euros ($760 million) to 250 million euros ($316.7 million) next year.
``This has really strengthened our liquidity position,'' Crotty said.
The company has built up a stable of chemical and polymer interests in recent years with acquisitions that have included Innovene from BP Chemicals and PVC makers EVC and Hydro Polymers.
``In recent weeks,'' said Ineos Chief Financial Officer John Reece, ``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 macro economic uncertainty.
``This is resulting in severe customer de-stocking. While this reduces short term visibility, we believe that the picture will become much clearer at the end of [the first quarter of] 2009.''