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Westlake Chemical plans ethylene IPO

04.29.2014  | 

Westlake Chemical Corp. has separated its ethylene assets into a tax-advantaged venture in which it plans to sell shares to the public.

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By JACK KASKEY
Bloomberg

Westlake Chemical Corp., the US plastics maker controlled by the billionaire Chao family, has separated its ethylene assets into a tax-advantaged venture in which it plans to sell shares to the public.

The master-limited partnership (MLP) includes three US ethylene plants and a 200-mile (322-km) ethylene pipeline. Ethylene, the most common petrochemical, is used to make products from plastic bottles to autoparts and pipe.

Westlake is creating the chemical industry's first MLP after the Internal Revenue Service in October 2012 ruled that companies converting ethane and other natural gas liquids (NGL) into olefins like ethylene can classify themselves as such. The partnerships, common in the pipeline industry, generally do not pay income taxes at the corporate level.

Westlake will own 90% of the venture's operating company, leaving the remaining 10% as the MLP's sole revenue source, according to the filing. The unit will sell Westlake ethylene for making plastics at a 10 cent-per-gallon premium over production costs.

The move comes as earnings at US ethylene producers, from Westlake to Dow Chemical Co., are near record levels after a shale boom created plentiful and cheap supplies of NGL. That provides a cost advantage over producers in Asia and Europe, where oil-derived naphtha is the main feedstock.

The assets in the partnership generated $1.2 billion of revenue and $367.1 million of earnings before interest, taxes, depreciation and amortization last year, the MLP said. Westlake would have accounted for about 70% of the partnership's ethylene sales last year.



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