LyondellBasell Industries NV, the world’s largest producer of polypropylene plastic, ruled out separating some of its assets into a tax-advantaged master-limited partnership -- for now.
After 18 months of study, management concluded that concerns about adding a so-called MLP outweigh the potential benefits, Sergey Vasnetsov, a senior vice president, said Wednesday on a webcast of the company’s investor day in New York. LyondellBasell, which is based in Rotterdam and run from Houston, could re-evaluate its position in the future, he said.
“We are not closing the door completely,” Vasnetsov said.
LyondellBasell had discussed the possibility of creating an MLP since a 2012 ruling by the Internal Revenue Service cleared the way for competitor Westlake Chemical Corp. to create the tax-advantaged structure for its ethylene assets. MLPs are common in the energy-pipeline industry and generally eliminate income taxes at the corporate level.
Transferring assets such as ethylene and methanol plants, as well as the Houston refinery, to an MLP would add volatility to LyondellBasell earnings, Vasnetsov said. The MLP would be small-scale relative to the current company, which is currently generating “prolific” free cash flow and has access to inexpensive debt, he said.
LyondellBasell plans to use free cash for share buybacks and gradual dividend increases that benefit shareholders in the near term rather than investing in big capital projects such a new ethylene plant, Vasnetsov said. While the company regularly evaluates acquisition opportunities, no large deals are planned currently, he said.
Nearly $2 billion in expanded and new plants being built from 2012 to 2019 could add as much as $1.8 billion to annual earnings before interest, taxes, depreciation and amortization, the company said in a slide presentation. That includes about $550 million in Ebitda from a planned propylene oxide plant and a similar amount from three ethylene expansions that haven’t yet started.
LyondellBasell rose 0.9 percent to $105.04 at 1:58 p.m. in New York. The shares have gained 32 percent this year.