Chemicals major Sanmar plans to raise equity to repay restructure debt

Fairfax-backed Sanmar Chemicals Group (Sanmar) is planning to raise equity to repay its restructure debt. The move would help the company to make investments in projects that exploit growth and cost-saving opportunities.

Founded in the early 60s, Sanmar's business interests span across chemicals, engineering technology and shipping, with operations in India, the Middle East and the Americas.

India-born Canadian billionaire-owned Fairfax India’s equity ownership is around 43 per cent in the company. Fairfax India’s investment is in the chemicals business, which constitutes more than 70 per cent of the group's operations and is housed within three operating companies, two in India – Chemplast Sanmar Limited (CSL) and Chemplast Cuddalore Vinyls Limited (CCVL) – and one in Egypt – TCI Sanmar (TCI).

Fairfax Chairman Prem Watsa said that in 2020 that TCI had a better year financially, but pandemic-related issues slowed its progress to the full and efficient operation of its plant. EBITDA was nearly at breakeven versus a loss of $74.1 million in 2019, and pretax loss improved from $215.2 million to $106.6 million. Curfews in Egypt has resulted in limited availability of workers, reduced demand in target markets, supply chain disruptions and travel restrictions preventing expert resources from visiting the plant to make planned adjustments to ramp up to 100 per cent capacity utilisation, all due to the pandemic, resulted in capacity utilisation reaching only 80 per cent.

"However, the biggest impact of the pandemic on all the Sanmar companies has been the squeeze on their liquidity position. In order to rectify this and to reduce the overall debt of the company, Sanmar is actively pursuing opportunities to raise additional equity capital to repay and restructure debt. Only after this is accomplished, Sanmar will make investments in projects that exploit excellent growth and cost-saving opportunities," said Watsa.

Despite the pandemic disruptions, based on provisional IFRS estimates, for the year ended December 31, 2020, Sanmar’s revenue was flat at around $700 million, but EBITDA increased from a loss of $8.6 million in 2019 to a profit of $123.7 million in 2020. Net loss in 2020 was reduced to $143.2 million from a loss of $187.4 million in 2019.

N Sankar, the chairman of the Sanmar Group, and his son Vijay Sankar, the deputy chairman, have grown the group into a large private conglomerate with sales of around $1 billion and an asset base of around $2 billion, said Watsa,

CSL is the largest manufacturer of paste polyvinyl chloride (PVC) in India. Sanmar’s flagship Indian chemical business, also manufactures chloromethanes, ethylene dichloride (EDC) and vinyl chloride monomer (VCM) in Tamil Nadu. Sanmar Speciality Chemicals, which manufactures custom made chemicals for customers in the agro-chemical, pharmaceutical and fine chemical industries, is also a part of this division.  CCVL is the second largest suspension PVC player in India. TCI, Egypt, after its expansion was completed in 2018, became a balanced integrated manufacturing facility and is the MENA region’s largest manufacturer of suspension PVC and caustic soda.

In 2016, Fairfax India lent Sanmar the rupee equivalent of $300 million by way of non-convertible debentures (NCDs) for a period of seven years. The NCDs provided for 3 per cent payment-in-kind interest and a redemption premium such that the annual yield of the NCDs would be 13 per cent. In addition, for $1 million Fairfax India received a 30 per cent equity interest in Sanmar’s entire chemicals business.

In 2019 Sanmar settled Fairfax $300 million of 13 percent bonds for $433.9 million, of which we invested $198 million in additional common shares of Sanmar based on an effective equity valuation of approximately $1 billion for the whole company, thereby increasing Fairfax equity ownership interest from 30 per cent to 43 per cent. This transaction returned approximately 76 per cent of the capital Fairfax India originally invested while increasing our ownership of Sanmar.

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