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Analyzing Celanese’s Interest Expense

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Apr. 5 2018, Published 3:43 p.m. ET

Celanese interest expense

In 2017, Celanese (CE) incurred interest expenses of $122 million—marginally less compared to $126 million in fiscal 2016. Celanese’s interest expense has been declining since 2013 despite the increase in its overall debt. The decrease in Celanese’s interest expense is mainly due to its refinancing activities. The company’s refinancing replaced the highest coupon rate debts with low coupon rate debts.

Celanese’s interest expense saw a significant decline in 2015 due to the redemption of $600 million senior notes carrying a coupon rate of 6.63%. In 2018, Celanese’s interest expense is expected to increase due to new debt issued in December 2017.

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Interest coverage ratio

The interest coverage ratio tells us how comfortable a company is in servicing its debt. The ratio is calculated by dividing a company’s EBIT (earnings before interest and tax) by its interest expense. The higher the multiple, the better the company’s position.

At the end of 2017, Celanese’s interest coverage ratio stood at 7.4x—compared to the industry average of 5.9x. Westlake Chemical (WLK), Olin (OLN), and LyondellBasell (LYB) have interest coverage ratios of 7.9x, 1.7x, and 11.1x, respectively. Although Celanese’s interest coverage ratio is below Westlake Chemical and LyondellBasell, it’s still above the industry average. The interest coverage ratio shows that Celanese can service its debt efficiently.

Investors could hold Celanese indirectly by investing in the PowerShares DWA Basic Materials Momentum Portfolio (PYZ). PYZ has invested 3.3% of its portfolio in Celanese as of April 4, 2018.

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