The special dividend will be paid in the current quarter from existing cash and new debt, David Harpole, a Houston-based spokesman for Rotterdam-based LyondellBasell, said today in a telephone interview. The dividend would be about $4.55 per share, based on reported shares outstanding.
LyondellBasell announced a tender offer late yesterday for $2.8 billion of Lyondell Chemical Co. notes due in 2017 and 2018, and it will ask noteholders to modify covenants that have limited the ability to pay more cash to shareholders. The debt will be refinanced at a lower rate, Harpole said.
Lower interest payments could add 32 cents a share to annual earnings, said Laurence Alexander, a New York-based analyst at Jefferies & Co. who rates the shares “buy.”
“This step to normalize the capital structure is occurring ahead of expectations, and underscores the company’s confidence in its free cash flow profile even in an uncertain environment,” Alexander said today in a note.
LyondellBasell, the world’s largest maker of polypropylene plastic, is benefiting from the low price of U.S. natural gas relative to oil, the main raw material used in Asia and Europe to make ethylene and related resins.
LyondellBasell rose 13 percent to $31.02 at the close in New York, the biggest gain since the stock started trading in April 2010 during the company’s emergence from bankruptcy.
The tender offer pushed the company’s bonds higher. Its $3.24 billion of 11 percent notes due in May 2018 added 1.3 cents to 111.8 cents on the dollar at 3:22 p.m. in New York, according to Trace, the bond price-reporting system of the Financial Industry Regulatory Authority. The debt has climbed from 102.3 cents in July.
Liquidity, consisting of $6 billion of cash on hand and $2.2 billion in unused credit lines, will drop to no less than $3 billion after payment of the special dividend and completion of debt financing, LyondellBasell said in a filing. Funded debt will drop to less than $5 billion from $5.82 billion as of June 30, Harpole said.
Improving the capital structure is part of Chief Executive Officer James Gallogly plan to rid the company of junk ratings on its debt, which Standard & Poor’s rates BB-, three levels below investment grade. LyondellBasell has reduced debt by almost $1.5 billion since emerging from bankruptcy, Harpole said.
The tender is for 67 percent of the company’s 8 percent notes and 41 percent of the 11 percent notes, Harpole said. He declined to say whether the company will try to buy back more debt.
The company’s debt ratings may rise to investment grade after the refinancing is completed, said Kenneth Duffel, an analyst for KDP Investment Advisors in Montpelier, Vermont. Investors should tender their bonds as the securities may drop if the offer fails, he wrote in a report today.
Company directors approved an initial dividend of 10 cents a quarter in April and raised the payment in August to 20 cents. The current annual yield is 2.65 percent. Jefferies’ Alexander said the company may lift the yield to 3.8 percent after getting rid of restrictive debt covenants.
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