Billionaire Polish Rally Car Driver Plans Debut Eurobond

By Konrad Krasuski and Maciej Martewicz  

Polish billionaire Michal Solowow, who controls synthetic rubber producer Synthos SA, is preparing to sell his first Eurobond to fund expansion and repay debt.
The company, which supplies tiremakers including Michelin & Cie. and Goodyear Tire & Rubber Co., is meeting investors this week and will probably pick euros over dollars, Jaroslaw Grodzki, head of the supervisory board, said by phone Sept. 15. Synthos, which said in June it could sell at least 200 million euros ($258 million) of debt, was given a BB rating by Standard & Poor’s two days ago, compared with a grade two steps higher for Lanxess AG, among its biggest competitors.
Solowow, 52, a three-time runner-up in the European Rally Championship who also owns Poland’s biggest publicly-traded property developer and tilemaker, is planning a 520 million-zloty ($160 million) plant in Brazil as demand for rubber in the
world’s seventh-largest economy is set to grow. Synthos’s net debt rose 54 percent in the 12 months through June and sales have fallen for seven quarters from a year earlier as the automotive and construction industries slowed.
“Given the company’s expansion strategy and the fact its debt still isn’t that high, it shouldn’t have trouble finding buyers,” Monika Kalwasinska, an analyst at PKO Bank Polski SA in Warsaw, said by phone Sept. 16. “It’s just a matter of the cost of the debt.”
The yield on Lanxess’s November 2022 Eurobond has declined 123 basis points this year to 1.71 percent at 10:47 a.m. in Warsaw.

Rubber Expanding

Oswiecim, Poland-based Synthos, the second-largest European maker of styrene-butadiene rubber, was established by the Polish state in 1945 and taken over by Solowow in 2006. It gets half its revenue from rubber and latex production.
The company, which also has a unit in the Czech Republic, announced in March after reaching an agreement with Michelin, it will build a rubber plant in Brazil with a capacity of as much as 90,000 tonnes a year, expanding output by 20 percent. It also expects to complete a 555 million-zloty plant in Oswiecim next year, financed partly by a European Investment Bank loan.
The ratio of net debt to earnings before interest, taxes, depreciation and amortization was 1.4 at the end of June, according to company data. That’s below the maximum level of 3.75 of Ebitda allowed by the company’s existing bank loans, it said in the bond prospectus.

Risk-Off Period

Moody’s Investors Service, which gave Synthos a Ba2 rating two days ago, in line with S&P, underlined its “exposure to the volatile petrochemical and synthetic rubber industries, its moderate size and limited portfolio diversification,” analyst Sergei Grishunin wrote in an e-mailed report.
Synthetic rubber prices jumped to a record $4,500 a tonne in 2011 on shortness of butadiene, a raw material used for production. It dropped to about $2,400 a tonne in June this year as global tire production slowed, according to IHS Chemicals data published by Synthos in the bond prospectus.
“Potential bond issuers with any kind of complication attached will no doubt have to pay up, given we are in a period of risk off,” Andrew Lake, who helps manage $625 million of funds at Mirabaud Asset Management Ltd. in Zurich, said by e-mail Sept. 16. “The Synthos deal will be a good indicator of investor demand after the summer holidays.”

Arcelik Sale

The Synthos issue will be the second euro-denominated high-yield sale from the region this month after Turkey’s Arcelik AS (ARCLK), rated one notch above Synthos at BB+, issued 350 million euros of seven-year notes with a 3.875 percent coupon, data compiled by Bloomberg show.
Synthos’s Grodzki declined to comment on the possible yield or maturity of the notes, saying the company will seek to broaden the maturity of existing bank loans, the longest of which is five years.
“The high-yield market is still hot,” Jerzy Rozlucki, Warsaw-based director for corporate and structured debt at PZU SA, the largest Polish insurer, said by phone Sept. 16. “Synthos may also rely on interest among local funds that know the company and its expansion plans well.”