More acquisitions expected to fill missing links
Having expanded its business empire by acquiring assets over the past few years, Indorama Ventures Plc (IVL) is preparing to announce more acquisitions during the course of this year.
The company, which has already announced plans to invest US$2.2 billion in expansion over the next three years, last week announced the acquisition in its Thailand home base of Bangkok Polyester. The amount has not been disclosed but analysts expect the price to be around $45 million based on the company’s 105,000 tonnes of annual capacity the ongoing cost per tonne to acquire such assets.
“There are a few acquisitions that will be announced over the course of this year and some will come within weeks from now,” a company source who asked not to be identified told Asia Focus.
The SET-listed company, established in Thailand in 1994, has been expanding its operations across the world, and today it has offices in 17 countries and a total of 51 manufacturing sites. Thailand accounts for just 8% of its overall revenues, prior to the acquisition of Bangkok Polyester.
In terms of revenue distribution, North America accounts for about 33% of the 248 billion baht that the company earned last year and Europe generates 27%. The remainder comes from Asian operations in countries ranging from China to Indonesia.
IVL plans to expand its operations in the Middle East and the Indian subcontinent in the very near future.
Meanwhile, market watchers expect Indorama within the next few weeks will make yet another announcement that could result in the eventual acquisition of capacity totalling about 1.3 million tonnes of purified terephthalic acid (PTA), the raw material for the production of polyethylene terephthalate (PET).
The company has been undertaking backward integration in the PET business in many markets and in North America where it has one of the largest shares in the PET business. It already has monoethylene glycol (MEG) operations and large PET operations in North America but still lacks the link between MEG and PET.
MEG is used to produce PTA, which then is used to produce PET.
“Yes, you’re right, there is a missing link there,” said the source when asked about plans for North America, declining to elaborate beyond saying that some details should emerge in a week or so.
Analysts say there are chances that IVL may look to acquire PTA assets in North America as part of its plans to lower production costs and remain competitive player in a market that continues to show strong growth and margins that are stronger than in Asia.
The North American market has only four PTA producers: British Petroleum’s BP Chemical with a combined capacity of 5.2 million tonnes, Eastman Chemicals (1.9 million), Invista (1.55 million) and DAK America with 1.3 million tonnes.
The North Carolina plant of DAK America has been shut for nearly a year. Since Indorama has a history of acquiring assets that are lying idle, analysts say that DAK America could be the potential target, although the plant is relatively old and would need a large investment for the “debottlenecking” that Indorama usually undertakes when it takes over a company.
“The replacement cost of a PTA asset in North America is between $550 and $600 per tonne, which would mean that the acquisition of 1.3 million tonnes could mean an investment of about $715 million,” said one analyst who follows Indorama closely.
The acquisition of DAK could help feed the various PET plants in North Carolina and other PET plants that Indorama has in the United States apart from AlphaPet in Alabama, which sources PTA via a direct pipeline from the BP plant located next door.
The company has declined to comment further. Richard Jones, head of corporate communications, said he had no information on any new deals taking place apart from the ones that have been announced.
In addition to the most recent Bangkok Polyester acquisition, IVL recently acquired a PET business in Turkey from Polyplex (Thailand) Plc, as well as the Asian operations of Performance Fiber, a US-based company that specialises in fibre for the ever-growing automotive tyre market in Asia. Demand for tyre-related products has been rising by an average of 8% annually since 2009.
The management of Indorama has stated that the acquisition of Performance Fiber would be part of the effort to increase the high value-added (HVA) content of the group as it continues to move away from more commodity-based products.