Ineos debt sell-off accelerates amid fears over European chemicals sector

Sir Jim Ratcliffe’s heavily indebted empire is under increasing financial pressure, as concerns about Europe’s beleaguered chemicals sector hit the price of the group’s debt and credit analysts flag concerns about its future.

The sell-off of Ineos debt this year has accelerated in the past week, wiping hundreds of millions of pounds from the market value of the paper, as the group warned that time was “running out” to rescue the European chemicals sector.

Ineos, one of Britain’s largest privately owned companies, is filing anti-dumping cases against imports of cheap chemicals products into the EU as it tries to protect the sector.

The group’s ratio of net debt to earnings before interest, tax, depreciation and amortisation has risen from six times in 2023 to about eight times “due to a weak chemical market and high capex for the completion of Project One”, its petrochemical facility being built in Belgium, according to Fitch Ratings. Ineos has a total debt pile of more than €11bn.

JPMorgan credit analysts downgraded their opinion of the group’s creditworthiness last month, following an earlier cut to its credit rating by Fitch, which in September demoted Ineos further into junk territory. The credit rating agency cited the group’s high leverage and uncertainty over the chemicals sector’s recovery, as it struggles with weak demand, global overcapacity and “heightened trade tensions”.

Ineos in October announced the closure of two production facilities in Germany and cut a fifth of its workforce at a plant in the UK as a “direct result” of high energy costs and “a lack of tariff protection”.

Beginning with the £84mn acquisition of an Antwerp chemicals facility from BP in 1998, Ratcliffe has spent the past two decades buying up unloved assets through a series of leveraged buyouts, creating one of the world’s largest chemicals groups.

The borrowing spree has cemented the Manchester United owner’s position as one of the most prolific sellers of junk debt in Europe, fuelling an operational expansion spanning 27 countries, including the UK, US and China.

Following forced restructurings at Patrick Drahi’s Altice France and Paul Coulson’s Ardagh, Ratcliffe had become “the new king of the high-yield market” in Europe, one high-yield bond investor said. As the largest borrowers in the high-yield market, Drahi and Coulson were regarded as European junk bond “royalty” before they were each forced into restructurings this year.

Debt worth about $3bn issued by Ineos US Finance, and some paper issued by Ineos Quattro of which there is more than $5bn outstanding, were trading at par at the start of the year but have fallen to about 80 cents on the dollar. Both were trading at over 90 cents on the dollar as recently as last month.

Ineos has become more vocal this year over its warnings on the state of the European chemicals sector. In February, it said the sector in Europe was “facing extinction”, citing policies that have resulted in “enormously high energy prices and crippling carbon tax bills”.

A high-yield bond investor trading Ineos’s bonds said he and fellow Ineos debt holders were betting that the “EU can’t afford for the entire chemicals industry to die off”.

However, due to Ineos’s large borrowings, Ratcliffe might be forced to “do a Drahi style [restructuring] deal one day”, said another high-yield bond investor.

Ineos told the Financial Times it had a “proven record of navigating challenging cycles” through cost control, cash generation and capital allocation.

“We continue to maintain tight financial discipline across all businesses and sites, with a detailed review of all costs to protect liquidity and margins,” it said in a statement.

The group’s credit ratings outlook reflected sector-wide conditions rather than company-specific fundamentals, Ineos said, adding that although Europe’s chemical sector faced “cyclical pressure”, the group was “better positioned than most peers” and was “actively engaging policymakers to restore industrial competitiveness across the region”.