Abstract
The effects of the economic slowdown on the Polish petrochemicals sector are
being further compounded
by the depreciation of the zloty, which has
raised the debt-to-earnings ratio of the country' s leading
petrochemical
producer PKN Orlen and led BMI to raise concerns over the impact on investment
in the
industry.
PKN Orlen has been struggling with debt and by early
2009 its foreign-currency-denominated debt rose
above the net
debt-to-earnings ratios defined in credit agreements owing in large part to
the depreciation
of the zloty. Agreements signed in April 2009 between PKN
Orlen and its creditors allowed it to
temporarily breach debt covenants
after its ratio of net debt to earnings before interest, tax, depreciation
and amortisation (EBITDA) surpassed an agreed level of 3.5. As part of the
deal, it has also agreed not to
exceed budgeted capital expenditures
(capex) in 2009. Meanwhile, initial reports suggest that PKN Orlen
suffered a decline in earnings in Q109, owing to a fall in the value of oil
inventories and narrower
petrochemicals margins. A fall in oil prices cut
inventories by PLN300mn (US$88mn). Profit from
production of polyolefins
and olefins declined, and volumes of petrochemical product sales dropped
2%
to 1.26mn tonnes. Falling earnings and rising debt will restrict PKN
Orlen' s ability to invest in expansion
and improve efficiency. This could
prompt it to sell off Anwil, its PVC and fertiliser subsidiary at a lower
price than it hoped. The company says it intends to proceed with spending
projects that have already been
launched in a bid to improve its
operational efficiency. Those projects include the construction of a
purified terephthalic acid (PTA) plant, completion of which is expected in
H210.
Anwil may be acquired by the Polish Chemical Consortium (PCC), which
was set up by chemical firm
Ciech and fertiliser producers ZA Tarnow and
ZA Kedzierzyn in October 2008, and which is seeking
outside investment to
expand its operations. PCC has stated that if it did not acquire Anwil, it may
bid for
fertiliser firm Police. The current economic crisis may prompt the
Polish government to reconsider a tieup
between PKN Orlen and Grupa Lotos,
although we remain wary of any rumours given the hard
stance that the
government previously took against such a merger.
Petrochemical prices are
expected to remain under pressure at least until the end of 2009, while
refining
margins are likely to remain weak until 2011. Furthermore,
additional capacity is expected to hit the
market at a time when demand is
slackening. Demand is expected to eventually recover, but a longer-term
problem facing the Polish industry is its dependence on foreign feedstock
supplies. At present PKN Orlen
derives most of its profits from refining
oil imported from Russia into diesel, gasoline and petrochemicals
that are
then sold in central Europe. The company has not made much headway in securing
access to its
own oil reserves and the seizure of the credit markets is
likely to make funding for any acquisition in the
near term difficult to
come by.
| 
View Cart
