BorsodChem widens door into Europe for China's Yantai Wanhua

09 September 2009 09:09 [Source: ICIS news]

By Judith Wang and Chow Bee Lin

SHANGHAI (ICIS news)--Acquiring a stake in Hungarian isocyanate producer BorsodChem would allow China’s largest methyl di-p-phenylene (MDI) maker, Yantai Wanhua, to penetrate deeper into the European market, industry sources and analysts said on Wednesday.

Yantai Wanhua currently produces 500,000 tonnes/year of MDI, roughly half of China's total MDI nameplate capacity.

“The biggest advantage for Yantai Wanhua is that they can obtain production base in Europe directly and help themselves to set foot in Europe MDI market,” said an analyst at a Shanghai-based brokerage firm who declined to be named.

The group has long been aspiring to build an MDI production base in Europe, according to the analyst.

UK-based private equity firm Permira Advisers, which acquired BorsodChem in 2006, has had discussions with Yantai Wanhua on the Chinese company's possible role in the Hungarian firm's restructuring, a Permira source said on Tuesday.

Yantai Wanhua's investor relations department and its listed subsidiary, Yantai Wanhua Polyurethanes Co, could not provide confirmation about the BorsodChem deal when contacted by ICIS news.

The Shanghai-based analyst said he heard that Yantai Wanhua's application for the BorsodChem investment was submitted to China’s investment regulatory body, the National Development and Reform Commission (NDRC), and was pending government approval.

Industry sources said they see Yantai Wanhua's interest in BorsodChem as an attempt to establish a stronger foothold in the European market, which could be a major export outlet for its MDI production in China.

Yantai Wanhua, which is based in China's eastern Shandong province, will have around 800,000 tonnes/year of MDI capacity when the second-phase expansion of its MDI plant at Ningbo is completed at the end of 2010.

Polymeric and monomeric MDI are used to make polyurethane foams, which go into a wide range of applications, including home appliances, construction, automobiles, footwear and synthetic leather.

China became a net MDI exporter following a slew of capacity additions over the past two years.

Meanwhile, Yantai Wanhua could be the anonymous Asian investor that bought more than €100m ($144.9m) of BorsodChem’s outstanding loans in August through investment bank Merrill Lynch, a source close to the Hungarian producer had said earlier on.

BorsodChem chairman and CEO Wolfgang Buchele had raised concerns that the motive of the Asian investor which did not reveal its name upon request could be hostile.

If the acquisition of a BorsodChem stake was successful, one possibility is that Yantai Wanhua would eventually inject the Hungarian company's assets into its listed PU unit “to avoid competition” within the group, said Wei Tao, an analyst at Shenzhen-based Guotai Jun’an Securities.

Details of the possible deal have remained sketchy and there was no certainty that the acquisition would push through, analysts said.

Debt-ridden BorsodChem has been in talks to secure a €100m rescue loan from Hungarian state-owned development bank MFB, while it seeks to restructure its €1.1bn debt with creditors.

“If BorsodChem gets its loan, will it still go ahead and sell its stake?” asked the analyst who declined to be identified.

($1 = €0.69)