Yara International ASA said this week it is evaluating an initial public offering (IPO) of its industrial nitrogen businesses as it moves to focus on crop nutrition. The plans were announced at the company’s Capital Markets Day in London on June 26.
As part of the evaluation process, the business units Mining Applications (TAN), Transport Reagents, and Industrial Nitrates will be organized in a separate entity, effective July 1, 2019.
Yara said the IPO would be initiated after a successful carve-out.
An IPO of the company’s industrial nitrogen businesses would create the first integrated industrial nitrogen company with global reach, the scope of which is still being evaluated. But Yara envisages the new company would consist of a large share of the former Yara Industrial and relevant production plants, assets, and supply chain, and said it plans to retain a significant ownership position in the new company.
Yara believes the new company would generate EBITDA equal to 10-15 percent of Yara International’s overall EBITDA, implying $152-$228 million based on 2018 figures.
Yara expects the conclusion of a final IPO scope in early 2020.
“Yara is well underway to becoming a focused crop nutrition company, and the evaluation of an IPO is an important step in that direction,” said Yara President and CEO Svein Tore Holsether. “This would create significant growth opportunities, strategic focus, and flexibility, for both a carved-out business and for Yara. A new ownership structure would allow these businesses to continue to thrive and grow profitably, while continuing to provide healthy returns to Yara.”
The company sees parallels in evaluating an IPO of its industrial nitrogen businesses “for opening up a similar growth story” to the successful demerger from Norsk Hydro 15 years ago.
Norsk Hydro ASA’s spun-off Agri fertilizer division began trading on the Oslo Stock Exchange on March 25, 2004, as Yara International ASA (GM Dec. 8 & 22, 2003; Jan. 26, 2004)
Following the Agri spin-off, Norsk Hydro focused on further development of its oil, energy, and aluminum businesses, and today is a focused aluminum company.
Eyes Qatar Expansion
Yara International is looking to expand its business in Qatar to counter a plan by Abu Dhabi National Oil Co. (ADNOC) and OCI NV to merge their Middle East fertilizer operations and create a regional champion, according to a Bloomberg report.
Yara will work with partner Qatar Fertiliser Co. (QAFCO) on boosting production to meet growing demand, Holsether said in an interview at the company’s Capital Markets Day in London. The Norwegian major has a 25 percent stake in QAFCO, set up by the Qatari government in 1969 to make use of the nation’s vast gas reserves. He was cited by the report as “seeing opportunities for working with Yara’s partners,” but he did not provide further details.
OCI and ADNOC announced their plans last week to combine their Middle East and North African fertilizer assets in a new joint venture, which – the parties said – will become the largest export-focused nitrogen fertilizer platform globally, and the largest producer in the MENA region (GM June 21, p. 1).
The planned joint entity will have a combined production capacity of 5 million mt/y of urea and 1.5 million mt/y of saleable ammonia. The combined saleable capacity represents approximately 10 percent of 2018’s combined ammonia and urea global seaborne exports, according to OCI.
Increased Improvement Program Targets, Updated Capital Allocation Targets
Yara has announced a 70 percent increase in targeted earnings improvements from the Yara Improvement Program, expanding the program from 2020 to 2023. It said key levers to achieve these targets will be higher production volumes and energy efficiency, a leaner cost base with clear fixed cost targets, and improved working capital management.
The improvement program is on track to meet its original end-2020 target, representing an important milestone towards realizing the expanded targets by end-2023, it said.
Following a period of several significant investments, Yara has announced a targeted capital structure to maintain a mid-investment grade credit rating, targeting 1.5-2.0 x Net debt/EBITDA and Net debt/Equity <0.60. It has lifted the target for ordinary dividends to 50 percent of net income, subject to maintaining a mid-investment credit rating.
“Our updated targets for capital allocation reflect our commitment to a mid-investment grade credit rating, while offering competitive returns to our shareholders,” said Yara EVP and CFO Lars Røsæg.