TRIS Rating reported that IVL, formerly named Beacon Global Co., Ltd., was established by the Lohia family on 21 February 2003 as a holding company. The company invests mainly in businesses alongthe polyester value chain, comprising production of purified terephthalic acid (PTA), polyethylene terephthalate (PET), and polyester fiber and yarn. Currently, IVL’s total installed capacities are: 1,934 thousand tonnes per annum (KTA) of PTA, 3,387 KTA of PET and 634 KTA of polyester. PTA is a major feedstock in the production of PET and polyester. PET is used to produce a wide range of packaging for beverages, food, personal and home care products, pharmaceuticals, as well as other consumer and industrial products. Polyester products are offered in a broad range for various end sectors which include apparel, home textiles, non-wovens, technical textiles, and automotive industries. The growth prospects for PET and polyester fiber are sound, because their properties allow these materials to substitute for traditional materials. PET is substituted for glass and aluminum in packaging, while polyester fiber and yarn is substituted for cotton in fiber and yarn. PET and polyester fiber are desirable due to their relatively superior characteristics, recyclability, and lower prices. These properties help to sustain the demand for PET and polyester fiber and yarn during the economic downturn.
IVL is a member of Indorama Group which also has sibling companies based in Indonesia and India, which focus on polyester and other petrochemicals. The company was listed on the Stock Exchange of Thailand (SET) on 5 February 2010, diluting the shareholding of the Lohia family from 92.9% to 66.4% at present. IVL’s headquarters is located in Bangkok, Thailand. IVL’s experience in the polyester value chain dates back in 1995 when Indorama Polymers PLC (IRP) started a PET plant in Lopburi province (Thailand). The company’s strategy aimed to be a global leader in polyester value chain businesses. During 2006-2010, IVL’s assets more than tripled through the consolidation of related operating companies, brown field acquisitions, and green-field projects. The succession of its own project developments were the commercial operations of Orion Global, Lithuania, in 2006, and Alphapet, the US, in 2009. Both are PET manufacturing plants. In 2011, IVL acquired companies in the US, Mexico, Poland, China, Indonesia, and Germany. In the first quarter of 2011, IVL spent around Bt22,000 million on acquisitions, which makes IVL the world’s largest PET producer. The performance of post acquisition will be monitored.
TRIS Rating said, at present, IVL’s facilities are located in 11 countries across three continents: Asia, Europe, and North America. In addition, the company has a PET green-field project under construction, located in Nigeria, Africa. IVL’s successful growth record is owed in part to its low-cost acquisition of distressed assets, intense management commitment to production efficiency, and ability to leverage the various key technologies in the polyester value chain. In addition, IVL’s presence in key global regions enhances its access to a worldwide customer base, which in turn yields high production utilization. The reliability of production is supported by feedstock procurement via its captive use, and virtual integration through co-location with major suppliers. These enable IVL to offer competitive prices to customers due to lower production cost and lower logistics costs. IVL can also avoid in part trade barriers in some competitive markets such as North America and Europe. Moreover, the engagement in both PTA and polyester products helps boost and stabilize its profitability.
TRIS Rating also said about IVL’s products which are categorized as commodity products that, they make the company exposed to the risk associated with the cyclical nature of the petrochemical industry as well as fluctuations in commodity prices. New production capacity and an uncertain global economy may negatively impact demand, selling prices, and margins. However, IVL’s business model of producing PTA and its derivative products should provide some cushion against the fluctuations. Being vertically integrated yields benefits, not only to secure feedstock sources for PET and polyester products, but also to reduce logistics costs and fixed costs through the sharing of common facilities.
IVL’s financial profile is considered moderate. Total revenue increased dramatically from Bt18,760 million in 2006 to Bt53,332 million and Bt96,858 million in 2008 and 2010, respectively. The increase reflected asset acquisitions in 2008 and the start-up of a green-field project in the US in 2009. In the first half of 2011, the acquisitions plus rising selling price elevated IVL’s revenue by 91.5% year-on-year (y-o-y) to Bt91,853 million. Profitability also improved after integrating PTA manufacture into the business portfolio in 2008. Operating income before depreciation and amortization as percentage of sales improved from 8.2% in 2007 to approximately 13% between 2009 and 2010. In the first half of 2011, the ratio dropped to 10.9% due to the squeeze spread of PTA product. Although the PET spread was widened at the same time, it could not totally offset the pressure on margins. The resilience of premium margin remains to be proved. Cash flow protection has improved, partly due to IVL’s sizable production and market base after the acquisitions. Funds from operations (FFO) increased significantly from Bt2,673 million in 2008 to Bt11,153 million in 2010. As a result, the FFO to total debt ratio improved from 6.3% in 2008 to 34.6% in 2010. For the first half of 2011, the company generated FFO of Bt9,440 million, an increase of almost double compared with the same period of last year. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio was enhanced from 2.5 times in 2008 to 10-11 times during 2010 through the first half of 2011.
However, TRIS Rating said, IVL’s investments during 2008 had weakened its balance sheet. Total debt increased from Bt11,562 million in 2007 to Bt42,602 million in 2008, which included debt financing investment and consolidated debt of those invested subsidiaries. As a result, the total debt to capitalization ratio increased from 64.6% to 70.6% in the same period. During 2010 through the first half of 2011, IVL’s financial position improved. The equity base grew through an initial public offering worth Bt3,824 million in 2010 and the exercise of transferable subscription rights (TSR) worth Bt17,224 million in the first quarter of 2011. The total debt to capitalization ratio improved to 47.9% at the end of June 2011, although total debt increased to Bt56,502 million from Bt32,205 million in 2010. As of June 2011, The company’s cash balance (cash and cash equivalent) was Bt20,595 million, which will be used to prepay debt of approximately Bt5,300 million in the third quarter of 2011. However, the company has planned to invest more during 2011-2014 to achieve an overall capacity of 10,000 KTA. The investment may be funded by the operating cash flow and new debt. Therefore, the total debt to capitalization ratio is expected to remain in the range of 40%-50% in the short to medium term.
Indorama Ventures PLC (IVL)
Company Rating: A+
Rating Outlook: Stable