In spite of some recent setbacks, one financial pro believes that private equity firms will continue to invest in the plastics and chemicals market — but the short-term road will be uphill in both finance and petrochemical sectors.
“The chemical industry will be stronger in 2014, but it will be very different,” Lazard Ltd. Co.'s Alasdair Nisbet said at the Chemical Market Associates Inc. World Petrochemical Conference, held March 25-26 in Houston. “Private equity will still be important.”
Nisbet is a managing director with Lazard, a leading financial firm with offices in New York, London and Paris. He recently advised the Haas family on Dow Chemical Co.'s purchase of Rohm and Haas Co.
Recent financial deals involving LyondellBasell Industries AF SCA and Ineos Group cost lenders $24 billion and $10 billion, respectively, Nisbet said. Lenders also lost $4 billion each on deals involving Huntsman Corp. and Hexion Specialty Chemicals Inc.
During 2009-14, there will be 40 different U.S.-based chemical firms with a total of $82 billion in debt maturing, Nisbet said. The market value of U.S. chemical stocks also has fallen almost 60 percent in the last 12 months.
“Fifteen years of [gross-domestic-product] growth created expectations of growth and returns that were too high,” he said. “Cheap and available money led to the rise of private equity and a poor understanding of risk.”
Polymer producers in particular are vulnerable because of significant volume decline, margin squeeze and weak pretax earnings, he said. Processors “can be very cash generating,” but their success depends on how heavily they're exposed to specialty end markets.
Nisbet said the downturn will lead the petrochemical industry to reduce capacity, but doing so could be difficult at integrated European sites.
When oil prices recover, Middle Eastern firms will invest in the petrochemicals market, but Nisbet said he doesn't anticipate a strong recovery until 2011.