Never Waste a Crisis

Lyondellbasell Emerges from Chapter 11 Poised to Regain Credibility

14.07.2010 -

Resilience - The 16 months Lyondellbasell spent in Chapter11 was a time of belt tightening and strategic rethinking. Having emerged from bankruptcy in April with a net debt load reduced from over $24 billion to approximately $5 billion and a new top holding company - Lyondellbasell Industries NV - the company is planning a public listing on the New York Stock Exchange in Q3 of this year.

Brandi Schuster and Michael Reubold spoke to Anton de Vries, Lyondellbasell 's senior vice president Olefins & Polyolefins for Europe, Asia and International, about the company's determination to re-establish credibility and its strategy for defending its position as the technology leader in polyolefins.

CHEManager Europe: Now that your company has emerged from Chapter 11, what will Lyondellbasell 's role be in the market over the next couple of years?

A. de Vries: we have just come out of Chapter 11, and our focus now is on regaining credibility, particularly in the financial world. We are working to serve our customers well, run our assets well and to prove that we have financial discipline. I don't see us making any big moves anytime soon; that would not fit in well with the situation Lyondellbasell has been in over the last three years.

We expect the next couple of years to be difficult, particularly for our polymers portfolio, polyethylene, polypropylene, etc. The supply and demand balance is quite different than it was in 2006 - it was really more of a suppliers' market four years ago. This shift is putting pressure on our margins, meaning that both we and our competitors are facing a few more tough years.

How is your company positioned to make it through the coming years?

A. de Vries: We must take into consideration how quickly the new capacity comes on stream and how quickly it gets absorbed around the world. There are some weeks when the market seems to be doing reasonably well, then things happen like the financial crisis in Greece, and that leaves a lot of people scratching their heads. While the situation is uncertain and volatile, our position is still quite strong. Even though Europe, for example, is a mature market, we have a good market presence and asset positions there.

We have also moved our portfolio to include more differentiated products with durable applications, which will serve to safeguard the company during this difficult period. Of course, we do expect some rationalization to take place as well.

You mentioned credibility. Do you think it has suffered among your customers?

A. de Vries: When a company gets into a Chapter 11 situation, it is inevitable that credibility will suffer - with suppliers, customers, financial institutions and quite frankly, even with the employees.

As far as our customers are concerned, we never stopped supplying products to them during Chapter 11, and we also remained committed to agreements, such as our volume rebate system in polymers. While our customers were uncertain during the first few months of Chapter 11, we were able to regain our credibility with them once they realized that it had no impact on our ability to supply them with products. This doesn't mean that we didn't suffer at all; in the cases where Lyondellbasell was the sole supplier, some customers needed the security of taking on a second supplier.

India's Reliance Industries made several bids for Lyondellbasell over the last few months. How does your company view competition from the Asian market?

A. de Vries: Quite frankly, we weren't surprised that there was an Asian competitor among the bidders for our company. The competition from Asia is getting stronger and stronger, and while they are mostly still local or national players - albeit in large countries - many have the ambition to become global players, just like Sabic has done. This is not necessarily a bad thing - it's actually pretty healthy. It's difficult to say if this will affect us in the long run.

Lyondellbasell 's strengths are currently based in the American and European markets, both of which are losing importance in comparison with Asia. How do you plan on taking advantage of the growth potential in the Asian market?

A. de Vries: For a company our size, we are underrepresented in Asia, like most European or American-European companies. However, we have been developing business in Asia, mainly through joint ventures in Japan, South Korea and Thailand. We have also invested in China in automotive polypropylene compounding, and we have joint ventures in propylene oxide in China and Japan.

The big investments in Asia are being made by the Asian players themselves, like Reliance in India and PTT in Thailand, and by the major oil and chemical companies, such as Shell, BASF and Dow.

Are there plans to increase the company's presence in Asia?

A. de Vries: We don't currently have any plans to start large investments in Europe, the U.S. or in other parts of the world. It is just too early to say. Once we have proven our credibility in a year or so, then this could be something for discussion with the management board and our shareholders.

So that means Europe will still have an important significance for Lyondellbasell in the future?

A. de Vries: Taking our asset base and the European markets into consideration, Europe is clearly significant for our company. With assets in Germany, France, Spain, UK and Italy, and our joint venture with Poland's PKN, we are able to serve the market here in a big way. Also, we are now serving the European market more and more via joint ventures that we have established over the last 10 years in the Middle East.

Speaking of the Middle East, Lyondellbasell has three joint ventures in Saudi Arabia - Saudi Polyolefins Company (SPC), Saudi Ethylene and Polyethylene Company (SEPC) and Al-Waha - through which the company will market about 2 million tons of polypropylene and polyethylene per year.

Which markets are you focusing on with these products? What significance does the European market have as far as these products are concerned?

A. de Vries: Major quantities of the products from those sites head east, to India and China. China will remain a rather large importer of polyolefins.
There are also a limited number of products that go to the European market, and we don't see that changing significantly over the next few years.

The mainstream of the Middle East production in general goes east. This fact makes us dependent on the speed of growth in that part of the world. If the growth scenarios turn out to be disappointing, then, of course, the products will flow to other parts of the world. But one thing is certain: The cost position of the Middle East assets is by far the best. That means these assets can reach out to almost any market around the world.

Do you plan on expanding your product line or will Lyondellbasell 's main focus remain on the polyolefins market in the future?

A. de Vries: If we are talking about polymers, then we will build our position in polyethylene and polypropylene products and polyethylene, polypropylene technology, etc. As I said before, we need to demonstrate our credibility first; only then will we be able to consider other developments.

If you take Lyondellbasell as it is today, it is a lot more than just a polymer company. While polymers do make up one third of our company in terms of turnover, we also have a chemical portfolio and a pretty large fuels business. We have a much more diverse portfolio than we did with Basell, which was almost a pure polyolefin player.

Could that mean that you are planning to divest some of the Lyondell product lines?

A. de Vries: It would be pure speculation to answer that. For us at the moment, the most important thing is to operate our assets well and to prove spending discipline.

Lyondellbasell was considered to be the technology leader in polyolefins. How do you plan on defending this position as technology leader?

A. de Vries: We are still the technology leader in poyolefins and polypropylene, and we always have been. We are not planning any major changes in our strategy there - in fact, we plan on investing a considerable amount of money in research for polyolefins, more than most or almost any of our competitors do.

This kind of investment is absolutely necessary in order to stay innovative and to come up with new products, new catalysts, and new processes - like we did in polypropylene with the Spherizone process a few years ago.
There is still quite a bit of innovation possible in that business, and we are spending the necessary R&D money to maintain, or even grow, that position further.

What is the difference between Lyondellbasell before and after Chapter 11?

A. de Vries: The number one difference is, of course, the balance sheet. Before Chapter 11, we were a highly leveraged company, with over $20 billion in net debt on the balance sheet. Our current net debt level is only approximately $5 billion and our equity-debt ration is about 2:1. This is a very large change and puts our company into a completely different position.

The second difference is that we were in a real crisis situation for 16 months; that means we were much more prepared to make changes than if we had not been in a crisis. We used our time in Chapter 11 wisely, taking a lot of costs out, rationalizing assets, etc.
We took the old saying to heart: Never waste a crisis.