Polish fertilizer and chemical producer Grupa Azoty SA on June 6 reported that it and Polish oil refining and petrol retailer PKN Orlen SA have signed a cooperation and non-disclosure agreement on the potential acquisition of Azoty subsidiary Zakłady Azotowe Puławy. Both Grupa Azoty and PKN Orlen are state controlled.
The Puławy unit is Azoty’s most profitable, and its production includes ammonium nitrate and urea, as well as caprolactam and melamine. The announcement follows speculation over the past month that Azoty may need to sell its prized Puławy subsidiary to improve its financial position, along with reports that PKN Orlen was eying a potential acquisition of the unit (GM June 2, p. 26).
Azoty had warned that it may breach debt covenants at the end of the second quarter (GM May 26, p. 26) after reporting a group net loss of Pln555 million (approximately $132.6 million at current exchange rates) for the first quarter of 2023 (GM May 19, p. 5).
Azoty said it has faced a number of challenges in recent months, including duty-free imports of nitrogen fertilizers produced outside of the European Union from cheaper feedstocks, as well as previously soaring energy prices in Europe and the continued supply/demand disruptions caused by Russia’s invasion of Ukraine.
Azoty reported this week that it was negotiating with its financial institutions about the suspension of selected covenants, but re-iterated that its liquidity is not threatened, according to a Polish Press Agency report, citing a company statement.
Tomasz Hinc, President of the Management Board of Grupa Azoty, said in a statement that merging Pulawy into PKN Orlen “would increase the Orlen Group’s participation in the fertilizer sector and enhance its efficiency and competitiveness on the European market through numerous synergies.
“For farmers and other customers of the two companies, the merger would mean a better and broader range of fertilizer products and easier access to products in demand at a given time, achieved through enhanced production flexibility,” he added.
“Integration of two large nitrogen fertilizer producers would increase their production efficiency and strengthen their ability to even better respond to market needs,” said Daniel Obajtek, CEO and President of the Management Board of PKN Orlen.
Puławy’s fertilizer-related production capacity includes 1.24 million mt/y of ammonia, 1.19 million mt/y of urea, and 1.2 million mt/y of UAN, according to the Green Markets database. In addition, the subsidiary in 2020 commissioned a new AN/CAN fertilizer plant with total production capacity of up to 820,000 mt/y (GM July 10, 2020). One production line is for granulated AN (32% N) with 1,200 mt/d capacity, while the second is for CAN-27 production at 1,400 mt/d.
In a statement, Azoty and PKN Orlen outlined a number of synergies from the planned integration. These include “an attractive product mix and improved competitiveness” against European and non-EU players, as well as “intra-group feedstock balancing” particularly aimed at “more efficient ammonia management.”
PKN Orlen said it will start due diligence in July and expects to complete the Puławy acquisition by the end of 2023. The potential merger aligns well with PKN Orlen’s new focus on petrochemicals, according to analysts.
PKN Orlen already owns Polish fertilizer producer Anwil SA after gaining full control of the company in 2012. Since then it has invested in new production facilities, the latest of which is a third nitrogen fertilizer plant under construction at Anwil’s existing production site in Włocławek in Central Poland.
When completed, the new facility will increase Anwil’s fertilizer production capacity by roughly 50%, to 1,461,000 mt/y, adding AN, ammonium sulfate nitrate, AN with sulfur, and CAN with magnesium to its portfolio. As of October last year, the plant was 92% complete and the producer anticipated commissioning by the end of July 2023 (GM Oct. 28, 2022).