Huntsman’s debt position
Huntsman’s (HUN) debt has been on a declining trend ever since it peaked at $5.2 billion in 2014. The decline accelerated in 3Q17 when HUN paid some of its outstanding debt from the IPO net proceeds received from its spin-off of Venator. At the end of 3Q17, HUN’s debt stood at approximately $2.9 billion, and the company had cash of $451 million. On December 4, 2017, HUN further reduced its debt by repaying the outstanding $511 million term loan due in 2023.
HUN used the net proceeds received from the secondary IPO of Venator along with cash on hand to repay this debt. HUN still holds a 55% stake in Venator. As a result, we expect HUN’s debt will be at $2.3 billion by the end of 4Q17, the lowest since 2012.
Impact on debt to equity
The debt-to-equity ratio is an indication of the extent of debt used by a company to grow its assets. A higher debt-to-equity ratio indicates that a company has used extensive borrowing to finance its growth. However, the cost of debt can hamper a company’s earnings due to high interest expenses.
At the end of 3Q17, HUN’s debt-to-equity stood at 1.36x, and we can expect further improvement after the repayment of its term loan B due in 2023. Analysts expect HUN’s debt-to-equity ratio to be around 1.10x by the end of 4Q17. However, it is still higher than the industry average of 0.92x. In comparison, HUN’s peers LyondellBasell (LYB), Westlake Chemical (WLK), and Eastman Chemical (EMN) had debt-to-equity ratios of 1.22x, 0.82x, and 1.33x, respectively. Thus, HUN’s debt-to-equity ratio is more or less on par with its peers.
Investors can indirectly hold HUN by investing in the First Trust Materials AlphaDEX Fund (FXZ), which invests 2.3% of its portfolio in Huntsman as of December 12, 2017.
In the next part, we will look into Huntsman’s ability to service its debt.