At the end of 2017, LyondellBasell (LYB) reported debt of $8.6 billion compared to $9 billion in 2016. The fall in LYB’s debt was primarily the result of its $493 million repayment of commercial papers.
Even after the repayment, LYB’s debt was almost the double the amount it was in 2012, which was $4.4 billion. Going by the latest numbers, LYB’s debt has grown at a CAGR (compound annual growth rate) of 14.6%.
The debt here represents short-term debt, long-term debt, and current maturities of long-term debt.
This repayment of debt will help LyondellBasell to reduce its interest expense. LYB is scheduled to pay off $70 million of its debt in 2018 and $1.1 billion in 2019. It remains to be seen whether, due to its strong free cash flow, LYB intends to retire debt early and further bring down its debt level.
LYB’s debt-to-equity ratio
The strong growth in LYB’s stockholders’ equity—from $6.0 billion in 2016 to $9.0 billion at the end of 2017—and its reduced debt make for the perfect recipe for an impressive debt-to-equity ratio. At the end of 2017, LYB’s debt-to-equity ratio stood at 0.96x compared to 1.48x a year earlier. LYB’s peers Olin (OLN), Westlake Chemical (WLK), and Celanese (CE) have debt-to-equity ratios of 1.3x, 0.8x, and 1.3x, respectively. LYB’s debt-to-equity ratio is better than the industry average of 1.06x.
LYB’s free cash flow
In 2017, LYB generated $3.7 billion in free cash flow. In the past five years, LYB has consistently generated free cash flows of more than $3 billion. However, the majority of these free cash flows have been used to pay dividends, buy back shares, and make other short-term investments. At present, it appears that debt repayment isn’t LYB’s top priority. It remains to be seen whether LYB will do an early redemption of its notes and further bring down its debt level.
Investors can hold LYB indirectly by investing in the Materials Select Sector SPDR ETF (XLB), which has invested 5.5% of its portfolio in the company as of March 22, 2018.
In the next article, we’ll look into LYB’s interest expense and interest coverage ratio.