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Interview with Phisanu Sermchaiwong, CFO, EQUATE

Against a backdrop of severe emerging market volatility and depressed oil prices, EQUATE’s acquisition of MEGlobal was a major milestone for the company, and will help solidify its global presence and leadership in the global petrochemicals industry. Financed by a well-structured and competitively priced US$6bn bridge acquisition facility, which was awarded the Syndicated Loan Deal of the Year Award at the Bonds, Loans & Sukuk Middle East Awards 2016, the acquisition solidifies EQUATE's position as the world’s second largest ethylene glycol (EG) producer. Bonds & Loans speaks with Phisanu Sermchaiwong, CFO of EQUATE about the company’s funding journey executing the acquisition, and discusses what other leading CFOs and treasurers can take away from the company’s experience with executing large, complex transactions in a volatile market environment.

Jan 16, 2017 // 9:13AM

EQUATE acquired MEGlobal in December 2015, and raised US$6bn with an acquisition bridge loan, at the time. Can you give us some background on the acquisition, and its significance to your business?

The rationale for this acquisition is quite simple. It makes a lot of sense to combine both companies under one umbrella, to become a truly global petrochemical company that competes globally with a much stronger business model. It fits perfectly with EQUATE’s strategy to grow outside of Kuwait while utilizing and optimizing its financial flexibility and capital structure.

Through acquiring MEGlobal, EQUATE is benefiting from significant economies of scale with a larger and more diversified manufacturing and distribution platform through Kuwait, North America and Europe. It has resulted in an improved operational efficiency and cost to serve position with multiple points of access to feedstock from competitive sources in North America and the Middle East. In addition, the transaction brings with it an exceptionally experienced team, as well as a wider global network of clients.

MEGlobal also provided us with a major growth opportunity through a new world-scale ethylene glycol (EG) project in the US Gulf Coast utilizing advantaged shale gas feedstock. This has made EQUATE the first Kuwaiti petrochemical company to invest in the USA.

The new facility, to be completed during 2019, will increase EQUATE’s EG capacity by 750,000 metric tons annually and will enhance EQUATE’s global presence to meet customer needs. EQUATE currently is the world’s second largest EG producer with 12% global market share. Through its existing plants in Kuwait and Canada,

EQUATE’s current EG production capacity is 2.4 million tons per year, which will reach 3.15 million tons annually once the US-based complex is completed.

EQUATE has spent the past year refinancing that US$6bn acquisition loan with a term loan, and more recently, set to work on its debut bond – a milestone for the company. Can you take us through that journey in more depth? What kind of challenges did EQUATE encounter along the way, and how were they overcome?

EQUATE’s US$6 billion acquisition facility was the largest syndicate loan throughout the Middle East in 2015. The bridge financing of US$6 billion was put together within a short time amidst challenging financial conditions during 2015. We were pleased to have strong support and commitment from various banks, especially the excellent capabilities of local and regional banks to support such sizable deals. In 2016, EQUATE successfully replaced the bridge loan with permanent financing through a combination of bank loans and debt capital market (DCM) transactions.

EQUATE is extremely proud to continue its pioneering role with world-class and unprecedented achievements in Kuwait. In October 2016, EQUATE successfully issued US$2.25 billion bonds.  It is the   first Kuwaiti company to issue 144A transaction bonds. The bond issuance is considered the largest ever in Kuwait’s history and it is the Arabian Gulf’s largest bond issuance since 2014. This is following EQUATE’s securing investment grade ratings from S&P (BBB+) and Moody’s (Baa2).

How will EQUATE’s approach to capital markets and syndicated loan markets change going forward? What are the most influential factors in play here?

EQUATE will continue to maintain its solid financial flexibility with full access to diversified sources of funding. Managing relationships with banks and maintaining investment grade rating to ensure full access to debt capital market at efficient cost of funding will enable the company to seize any suitable business opportunities in the future.

What does EQUATE’s business plan look like for the forthcoming 24 months? What is your growth strategy, and how is the company differentiating from its peers?

For the next two to three years, EQUATE’s two main focus areas are to complete our US-based EG plant on time and on budget, as well as focus on integrating MEGlobal and realize the full synergy from the acquisition. These steps are part of our strategic expansion plans as an international petrochemical enterprise that serves our customers globally.

We are running fully integrated operations, with an advantaged feedstock profile, covering strategic locations in Middle East, North America and Europe.

Our expansion will enable us to meet rising demand for petrochemicals throughout the world, especially in the USA and Asia. We are pleased to be the first Kuwaiti petrochemical company to have an industrial investment in the USA through the EG facility which will be completed in 2019.

What are the key challenges you think CFOs and treasurers will face over the coming 12 months? How are you aligning your business to overcome these challenges?

The main challenges facing all of us include maintaining the financial flexibility and an advantageous cost position during the volatile external environment; as well as adapting to the fast pace of regulatory changes, which makes it more challenging to conduct business.

At the same time, regardless of these challenges, maintaining high operational reliability will make a significant difference in terms of any organization’s long term success. Along these lines, the support of shareholders is extremely crucial for ensuring continued success, and that is something EQUATE has been enjoying throughout the years.

As the macro environment continues to stabilise, what reasons are there to be optimistic about the markets in 2017?

While EQUATE is always optimistic about the future, we also believe that there are always external volatilities and risks that we all will need to monitor and manage, as well as new opportunities and arising challenges ahead of us. So, we should always be prepared for all scenarios, especially in light of current low oil prices, fast changing regulations and global competitiveness. This is done by continuing to stay fit and healthy, both operationally and financially.

Phisanu Sermchaiwong was named as EQUATE CFO during September 2014. Commencing his career at Dow in 1998, Sermchaiwong held a number of roles in finance, treasury and controllers throughout Thailand and the United States of America. Before joining EQUATE, he was appointed as a Finance Director for Dow Thailand and CFO of SCG-Dow Group of Joint Venture Companies in 2005, then Global Financial Planning Director for Dow in 2009. Phisanu holds an MBA in Management Information Systems and an MS in Finance. He is also a certified Chartered Financial Analyst.

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