Indorama Ventures

Indorama Ventures Public Company Limited (IVL) announced that it has signed a share purchase agreement with WIT Beteiligungs GmbH and Wellman International Trading, to acquire a 100% stake in the recycling and fiber manufacturing business of Wellman International in Europe. The acquisition is expected to be completed by year-end, pending regulatory approvals. The recycling and fiber business has 3 production facilities in Europe; a polyester fiber plant based in Mullagh, the Republic of Ireland with 80kta capacity, recycling plant at Spijk in the Netherlands with 45kta capacity, and Verdun in France with 28kta capacity. Total transaction is Euro42m.

Comment:

This should be positive for IVL as the target acquisition has know-how to blend recycled PET and industrial waste and will help steer IVL as a 'green' company with low carbon footprint. This is also in line with customers' needs to require their suppliers to use more recycling products. IVL should be able to fund this transaction from its cash (US$700m on hand at end 2Q11). Europe is currently a net importer of PET of 900k tons pa (global capacity for PET 21m tons). IVL has a 30% market share in that region.

Due to the relatively small capacity compared to IVL's total capacity of 5.5m tons currently, we do not expect this recycling business to contribute meaningful earnings to IVL but it should raise the 'social responsibility' image of the company. Maintain BUY with Bt63 TP.