Bangkok--20 Dec--Indorama Ventures
Indorama Ventures Limited Plc (IVL), one of the world’s largest integrated producers of polyester value chain, said that it was raising its target for investments until 2014 by around 90% to around $3.8 billion from the earlier projections the company had announced.
“We aim to be the undisputed leader in this industry through scale, innovation and branding,” Aloke Lohia, the group chief executive officer of IVL said during the shareholders meeting.
Mr. Lohia said that the company had earlier made the announcements that it would want to invest $2 billion from 2010-2014 to double its capacity from the 3.2 million tons of capacity that the company currently has but the company’s new targets are now set at 10 million tons of capacity by the year 2014.
“We had to weigh the issue at that time and the company had to be conservative in its announcements,” Mr. Lohia said adding that with the deals that are lined up the firm would likely be able to achieve its target.
The focus he said would be the emerging markets, where IVL has recently announced that it had acquired assets in markets such as Poland and Indonesia.
The company earlier this month announced that it had reached an agreements with Korea’s SK Chemicals Company Limited to acquire the entire issued capital of SK Eurochem Sp. z o.o., in Poland and PT SK Keris together with its subsidiary PT SK Fiber in Indonesia.
The acquisitions will consolidate Indorama Ventures (IVL) position in the two important emerging markets of East Europe and Southeast Asia with Polyethylene Terephthalate resin (PET) and Polyester Fibres and Yarns businesses. SK Eurochem is a 140,000 tons per annum PET manufacturing facility while SK Keris is a 160,000 tons per annum PET and Polyester Filament Yarn manufacturing facility and SK Fiber Indonesia is a Polyester Filament Yarn manufacturing facility with a capacity of 36,000 tons per annum.
The firm had earlier announced its plans to acquire assets in markets such as China and also was looking at starting up Greenfield plants in India. Apart from this IVL had also announced in November its plans to acquire PET polymer and resins manufacturing facilities located in Spartanburg, S.C. and Quer?taro, Mexico from certain subsidiaries of INVISTA B.V. The total value of the acquisition will be $420 million less certain assumed liabilities, and includes $229 million for the net fixed assets and equity interests, as well as $174 million for the net working capital of the business.
All these acquisitions and Greenfield projects are part of the $900 million that the firm has committed and some more funds are expected to be used in the setting up of the Indian operations that is slated to start next years.
“The remaining $2.9 billion would be used between 2011-2014 and there would be no more issuance of capital for the firm,” he said after getting the approval from the shareholders to raise the company’s capital by issuance of the ‘Transferrable Subscription Rights (TSR). The TSRs would be converted into 481,585,672 newly-issued shares at the rate of 36 baht a share by the existing shareholders. The TSRs would be given to existing shareholders at the ratio of 9:1.
Mr. Lohia said that the demand for polyester chain continues to remain strong as it starts to play a bigger role in substituting for the other products such as cotton for clothing and aluminum for packaging.
Polyester fiber is gradually replacing cotton in fabrics due to the shortage of cotton the world market amid various natural clamaties such as flooding. At the same time PET is starting to replace glass and aluminum in packaging industry. Reports also suggest that polyester fiber and PET packaging are far more environmentally friendly.
Mr. Lohia added that these fundamentals offer a great opportunity for the company to expand its business and that is one of the reason why the firm is going to undertake various Greenfield, browfield and some acquisitions in the next few years.
He said that the various acquisitions that the firm has undertaken have been value assertive to the company as the acquisition cost of these assets have all been on an average cost of about $450/ton, while the current assets of the firm are at around $572/ton.
“The acquisitions costs have been lower than the cost of the assets that the company has at this point and therefore it is easier to add value to the firm,” he said adding that the Greenfield projects would be the ones that would see the cost of building the plant at around $650/ton.
Mr. Lohia, whose family owns about 70% of IVL also said that the family would subscribe to the newly issued TSR.
The funds he said would be used for the various expansions that the firm is looking to undertake over the next few years, with the emphasis of the firm being to maintain its debt-to-equity at 1:1 while keeping the return on capital employed at steady rates of more than 16% that the firm has managed to generate over the past 7 quarters.