Indorama Venture Plc (IVL) has announced that (subject to the approval of regulators) it plan to acquire the Asian manufacturing operations of Performance Fibers Asia (PF Asia) from an affiliate of Sun Capital Partners Inc.
The acquisition of PF Asia will both increase IVL's polyester capacity by 2% to 1.82mta (and expand its total capacity by 0.5% to 8.41mta) and boost its High Value Added (HVA) polyester portfolio by 15% to 322kta.
PF Asia has a 17% capacity share and is the second largest producer of polyester tire cord fabric in China. PF Asia's plants are located in Kaiping City, Guangdong Province, China, and have a capacity of 41kta of polyester tire cord fabric and 48kta of polyester tire cord yarn. Its products are both sold in China and exported to other Asian countries.
Asia is the largest and fastest-growing market for polyester tire cord fabric, accounting for more than 50% of global demand in 2013 with an 8% CAGR, 2009-13.
As PF Asia is an operating business, they expect it to start generating earnings for IVL as soon the deal is closed. The HVA products normally yield fatter margins than commodity products. They preliminarily estimate that the acquisition will boost their long-term IVL earnings forecast by 4% and add Bt1/share of value to our DCF-derived YE15 target price.
This acquisition will add to IVL's presence in HVA automotive applications. Its existing HVA automotive fiber assets are Trevira and PHP Fibers GmbH.
The transaction is expected to be completed in 1Q15 (subject to the approval of regulators). As the deal has not yet been closed, the investment cost has not been revealed.
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