DealZone

Unhappy new year for chemical makers

December 31, 2008

2009It doesn’t look like 2009 is going to be a happy new year for the chemicals sector.

LyondellBasell Industries, the world’s third-largest independent chemicals company, has told lenders it is considering filing for bankruptcy protection amid plunging sales and a cash crunch, the Wall Street Journal said, citing people familiar with the matter.

The company is one of several in the sector facing one of the worst slumps ever in chemical demand. The industry has been battered by high price tags on crude oil and natural gas, which are key components of plastics and other chemicals.  Energy prices have plunged in recent months, but demand has also been hurt by recessions in most developed countries and a sharp slowdown in emerging economies.

Profits of U.S. chemical makers, in recent quarters, have been buoyed by strong demand from developing economies but the global financil crisis is hurting international results now. And Wall Street has trimmed its 2009 expectations for the sector, expecting weaker demand next year.

LyondellBasell, which is based in the Netherlands and has large U.S. operations, has hired bankruptcy counsel and told lenders it is trying to line up as much as $2 billion in bankruptcy financing, these people say. A Chapter 11 filing may be imminent, the report said.

2009 isn’t looking good for Dow Chemicals either, the largest U.S. chemical maker. The company, which earlier this month said it would close 20 facilities, divest several businesses and cut 5,000 jobs, is now facing the possiiblity of having to twist rival Rohm & Haas’ arm to renegotiate its $15.3 billion takeover of the specialty chemicals company.

That deal is now in question, after Kuwait scrapped a $17.4 billion joint venture whose proceeds Dow had planned to use to pay down some of the resulting debt from the acquisition. But experts say the terms of the deal leave Dow with very limited recourse.

But hope springs eternal.  With oil prices showing signs of receding and global economies getting trillions of dollars from their governments, let’s hope that 2009 ends on a better note than 2008 did. At least for the chemicals sector.

DEALS OF THE DAY

** Indian oil company ONGC said it will proceed with its 1.3 billion pounds ($1.89 billion) takeover of UK-listed Imperial Energy, to the relief of Imperial investors who feared ONGC would back out of the high-priced deal. 

** The Pininfarina family is set to sell out of its company, the designer of iconic cars for films and Ferrari, in a deal which will help the group handle its nearly 600 million euros debt.  
    
** Sumitomo Mitsui Financial Group, Japan’s third-largest bank, bought a small stake in South Korea’s KB Financial Group for about $46 million from KB’s banking arm Kookmin, Kookmin said.

(Photo, of a passer-by walking past an entrance in the shape of “2009″ in front of shopping mall in Shanghai, by Reuters)

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