OSWIECIM, Poland—Polish billionaire Michal Solowow, who controls synthetic rubber producer Synthos S.A., is preparing to sell his first Eurobond to fund expansion and repay debt.
The company, which supplies tire makers including Michelin and Goodyear, is meeting investors this week and probably will pick euros over dollars, Jaroslaw Grodzki, head of the supervisory board, said early last week.
Synthos, which said in June it could sell at least $258 million of debt, was given a BB rating by Standard & Poor's recently, compared with a grade two steps higher for Lanxess A.G., among its biggest competitors.
Solowow, 52, a three-time runner-up in the European Rally Championship who owns Poland's biggest publicly-traded property developer and tile maker, is planning a $160 million plant in Brazil as demand for rubber in the world's seventh-largest economy is set to grow. Synthos's net debt rose 54 percent in the 12 months through June and sales have fallen for seven quarters from a year earlier as the automotive and construction industries slowed.
“Given the company's expansion strategy and the fact its debt still isn't that high, it shouldn't have trouble finding buyers,” said Monika Kalwasinska, an analyst at PKO Bank Polski S.A. in Warsaw. “It's just a matter of the cost of the debt.”
The yield on Lanxess' November 2022 Eurobond has declined 124 basis points this year to 1.7 percent in Warsaw.
Oswiecim-based Synthos, the second-largest European maker of styrene-butadiene rubber, was established by the Polish state in 1945 and taken over by Solowow in 2006. It gets half its revenue from rubber and latex production.
Solowow made his first start in an amateur rally at the age of 17 and didn't begin a professional career until he could afford his own car, Mitsubishi Corp.'s Lancer Evo VI, more than two decades later, according to the website of his Synthos Cersanit Rally Team. This year he drove Ford Motor Co.'s Fiesta WRC in the rallies of Finland, Sweden and Poland on the FIA World Rally Championship circuit.
Synthos, which has a unit in the Czech Republic, announced in March after reaching an agreement with Michelin, it will build a rubber plant in Brazil with a capacity of as much as 90,000 tons a year, expanding output by 20 percent. It expects to complete a $170 million plant in Oswiecim next year, financed partly by a European Investment Bank loan.
The ratio of net debt to earnings before interest, taxes, depreciation and amortization was 1.4 at the end of June, according to company data. That's below the maximum level of 3.75 of Ebitda allowed by the company's existing bank loans, it said in the bond prospectus.
Moody's Investors Service, which gave Synthos a Ba2 rating two days ago, in line with S&P, underlined its “exposure to the volatile petrochemical and synthetic rubber industries, its moderate size and limited portfolio diversification,” analyst Sergei Grishunin wrote in an e-mailed report.
Synthetic rubber prices jumped to a record $4,500 a ton in 2011 on shortness of butadiene, a raw material used for production. It dropped to about $2,400 a tonne in June this year as global tire production slowed, according to IHS Chemicals Inc. data published by Synthos in the bond prospectus.
“Potential bond issuers with any kind of complication attached will no doubt have to pay up, given we are in a period of risk off,” Andrew Lake, who helps manage $625 million of funds at Mirabaud Asset Management Ltd. in Zurich, said by e- mail. “The Synthos deal will be a good indicator of investor demand after the summer holidays.”
The Synthos issue will be the second euro-denominated high-yield sale from the region this month after Turkey's Arcelik A.S., rated one notch above Synthos at BB+, issued 350 million euros of seven-year notes with a 3.875 percent coupon, data compiled by Bloomberg show.
Synthos' Grodzki declined to comment on the possible yield or maturity of the notes, saying the company will seek to broaden the maturity of existing bank loans, the longest of which is five years.
“The high-yield market is still hot,” said Jerzy Rozlucki, Warsaw-based director for corporate and structured debt at PZU S.A., the largest Polish insurer. “Synthos may also rely on interest among local funds that know the company and its expansion plans well.”