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What Happened in the Chemical Industry in the 1st Week of 2017?

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What Happened in the Chemical Industry in the 1st Week of 2017? PART 1 OF 3

Albemarle to Buy Back a Part of Outstanding Debt via Tender Offer

Albemarle to make early debt payment

On January 4, 2017, Albemarle (ALB) announced that it had issued a tender offer to repurchase debt worth $500 million. ALB is funding the tender offer from the net proceeds received from the completed sale of its Chemetall Surface Treatment segment. BASF took over the Chemetall Surface Treatment segment for $3.2 billion in cash. The company floated the tender offer to reduce debt.

Albemarle to Buy Back a Part of Outstanding Debt via Tender Offer

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How does Albemarle’s recent balance sheet look?

Albemarle’s debt in the last four quarters has been on a declining trend, which is a good sign for the company. ALB’s debt has fallen from $3.8 billion in 4Q15 to $3.5 billion at the end of  3Q16. With the assumption that the proposed tender will get the required response, Albemarle’s debt is expected to come down to $3.0 billion.

The impact of the debt reduction is clearly reflected in the company’s reduction of interest expenses. For the first nine months of 2016, the interest expense stood at $46.9 million as compared to $62.2 million in 2015.

Albemarle stock price

As of January 6, 2017, Albemarle stock closed at $90.81 and rose 5.5% for the week. Albemarle outperformed the Guggenheim S&P 500 Equal Weight Materials ETF (RTM), which rose 2.4% for the same period. Albemarle stock traded 8.6% above the 100-day moving average price of $83.62. In 2016, Albemarle returned 53.7%. Albemarle’ 52-week low is $45.78, and its 52-week high is $92.24.

Alternatively, investors can hold Albemarle indirectly by investing in the Guggenheim S&P 500 Equal Weight Materials ETF, which has invested ~4.0% of its portfolio in Albemarle as of January 6, 2017. The other top holdings of the fund include CF Industries (CF), Sherwin-Williams (SHW), and Monsanto (MON) with weights of 4.3%, 4.1%, and 4.1%, respectively.

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