Hello, everyone, and welcome to the OCI Investor Call. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question, please press star followed by one on your telephone keypad. If you have joined by the webcast, please use the chat box on the bottom right of your screen. I will now hand over to your host, Sarah Rajani, Vice President, Investor Relations and Communications, to begin. Sarah, please go ahead.
Thank you. Good afternoon, and good morning to our audience in the Americas. Thank you for joining the OCI Global Investors and Analysts Call. With me today are Ahmed El-Hoshy, our Chief Executive Officer, and Hassan Badrawi, our Chief Financial Officer. On this call, we will provide an update on our strategic review, as well as further details of our announced agreement yesterday to divest OCI Methanol to Methanex. I would like to remind you that any forward-looking statements made on this call involve risks, and the actual results could differ materially from those statements. Let me hand it over to Ahmed.
Thank you, Sarah, and thank you all for joining us today. I'd like to begin on slide four by reminding the audience of the context for yesterday's announcement. Another successful step in the multifaceted global strategic review OCI initiated last year, with the objectives of closing the share price discount to OCI's intrinsic value and unlocking value for our shareholders. Since December 2023 , OCI has announced four transactions in response to attractive opportunities in the market to realize value for shareholders, with expected cumulative tax-free gross proceeds of approximately $11.6 billion, proving our thesis correct. The competitive nature and broad spectrum of buyers involved in each of these four processes is unambiguous evidence of the intrinsic value held within each that was not recognized in OCI's sum of the parts valuation, nor reflected in OCI's share price.
These transaction outcomes reinforce OCI's superior value creation track record, exemplify OCI's team's superior execution capabilities and have delivered on our objectives to close the discount to OCI's fundamental fair value. OCI today is well capitalized with significant flexibility to achieve a net cash position by year-end, to meaningfully return capital to shareholders in a tax-efficient manner in the near term, and to invest in future value creative opportunities. Of note, we expect to return approximately $3.4 billion in cash to shareholders in a tax-efficient manner by November, following the IFCO closing last month and the pending closing of Fertiglobe, expected to conclude in Q4 this year.
This morning, we announced the conditional notice of redemption for all our outstanding 2025 bond notes, as well as the repurchase of our OCI Methanol minority partner stakes of 11% and 4% from Alpha Dhabi or ADH and ADQ Lunate, respectively. Hassan will comment further on the impact of these transactions shortly, but I'd first like to provide an overview of the key terms and strategic rationale for the sale of OCI Methanol to Methanex. Turning to slide six. OCI has agreed to divest 100% of its holding in OCI Methanol to Methanex in a cash and stock transaction for a total enterprise value consideration of $2.5 billion.
Adjusting this enterprise value proportionately for $450 million, approximately, of net indebtedness and leases, substantially all relating to Natgasoline's joint venture, the implied equity value for the transaction and expected gross proceeds to OCI are expected to be approximately $1.6 billion. This is comprised of $1.15 billion, approximately, in cash, subject to customary closing adjustments, and 9.9 million in newly issued Methanex stock, or approximately $450 million worth, subject to a four-month lockup post-closing. On a net basis, proceeds to OCI are expected to be approximately $1.2 billion after adjusting for payments to OCI Methanol's minority partners, ADH, ADQ, Lunate, and outstanding gas hedges and other items. Following the Methanex transaction, OCI will become the second-largest shareholder in the enlarged Methanex.
The transaction is expected to close in the first half of 2025, subject to legal and regulatory conditions and relevant antitrust approvals. The sale of OCI Methanol's indirect 50% stake in the Natg as joint venture as part of the transaction is subject to the resolution of a lawsuit regarding certain shareholder rights, which has been filed in Delaware Court of Chancery by Proman, who indirectly own the remaining 50% stake in Natg asoline. 40% of the enterprise value consideration and approximately 23% of the net transaction consideration, taking into account net indebtedness or equity value, is attributable to Natg asoline. The regulatory approval process for the sale of OCI Methanol to Methanex will progress concurrently with the progression of Proman's complaint.
If the dispute is not settled by the time regulatory approvals are received, Methanex has the option to not close on the purchase of the Natg asoline JV and close only on the remainder of the transaction. In this situation, Methanex retains the right to acquire OCI's JV interest for a specified period at its sole option. OCI strongly believes that that Proman's claims are without merit and intends to vigorously defend the case. Moving to slide seven. OCI Methanol, OCI Methanol is a highly strategic fit for Methanex. The combination of these highly attractive assets in a low-cost, low-risk jurisdiction with access to economic supply of natural gas feedstock greatly enhances Methanex's portfolio and augments Methanex's low-carbon capabilities and expertise within the methanol markets. The transaction leverages OCI's first-mover credentials in green methanol with complementary low-cost diversification to ammonia.
At OCI, we've always found it to be a competitive advantage to have operational and distribution capabilities in both methanol and ammonia due to their complementary nature. This advantage has been even more significant in the last few years, where both molecules are in pole position to decarbonize hard-to-abate sectors like power, marine, and industrial sectors. As a reminder, OCI Methanol is the world's fifth-largest global methanol producer and the only platform with production capabilities in both Europe and the United States. OCI Methanol is one of the world's first and largest green methanol producers and distributors, and one of the largest suppliers of low-carbon road fuels through our hyfuels business.
OCI's significant shareholding in the combined business provides an upside opportunity for future operational improvements, supported obviously by Methanex's outstanding track record as an operator of industrial assets, as well as potential upswing in the methanol industrial industry cycle. With that, I'd like to now hand it over to Hassan.
Thank you, Ahmed. Turning to slide eight, the bridge on this slide illustrates the waterfall between the total transaction consideration and expected net proceeds to OCI. After adjusting the 100% transaction enterprise value of $2.45 billion for approximately $450 million of net indebtedness, and this is substantially all related to the Natgas JV, the implied equity value of the transaction, as Ahmed mentioned, is approximately $1.6 billion, of which Methanex is paying approximately $1.15 billion in cash and circa $450 million in newly issued Methanex stock.
Bridging from the implied $1.6 billion in equity value, net proceeds to OCI are expected to be approximately $1.2 billion after adjusting for the 15% ownership stake held by non-controlling interests of ADH and ADQ units, outstanding gas hedge liabilities, and other customary closing adjustments. Turning to Slide nine. As Ahmed mentioned earlier, the strategic review was initiated to address the persistent discount on OCI's stock to the company's intrinsic value. The announced divestments are expected to culminate in approximately $11.6 billion of expected tax-free gross proceeds, which will result in a robust and well-capitalized continuing business.
This will afford OCI considerable flexibility to complete its clean ammonia projects, achieve a net cash balance by the end of the year, increase extraordinary cash distributions beyond the already communicated $3.4 billion, and invest in future value creative opportunities. We expect to provide further clarity on the future strategy of OCI around the time of our Q3 results, as we focus on completing the Fertiglobe and clean ammonia transaction closings. With that, I'd like to hand back to Ahmed.
Thank you, Hassan. Let me conclude by extending both our thanks to the entire OCI and Methanol, OCI and OCI Methanol teams for their contributions over the last fourteen years in creating a global leader in the methanol space. We're incredibly proud of their achievements and are highly confident as a new significant shareholder in Methanex's ability to create enduring value. With that, we'll open the line for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you have joined via the webcast, please use the chat box on the bottom right of your screen. If you would like to remove your question, please press star followed by two. When preparing to ask your question, please ensure your phone isn't muted locally, and the first question goes to Andrew Keches of Barclays. Andrew, please go ahead.
Morning, everyone, and congrats on the announcement yesterday. A couple of just quick ones on the balance sheet. So you announced the 2025 bond notes redemption this morning. I think in the past, you were messaging, I think it was substantial debt repayment at the parent level. In your view, just taking up the 2025s, does that satisfy that, or should the market expect that there could be further debt repayment as all the proceeds come in?
And then second, I just want to clarify again on those, the 2033 notes that are still outstanding, with OCI Methanol now sold. Do you think that this has triggered the all or substantially all clause? I believe previously when we've asked, that your stance was that it did not. Just trying to get a sense of whether you think you've tripped that at this point.
Yeah, no, thanks for your questions. I mean, I'll start by saying we don't comment, we don't-- we're not gonna comment on individual instruments on this call, but we would note that the group still retains a substantial business and will continue to evaluate opportunities for further investments of the group, as we mentioned earlier, as we talk about in due course, the future strategy of OCI going forward. On the 2033 specifically, we're assessing alternatives, and you know, while the 2033 notes could remain attractive financing for the company, we may consider opportunistic transactions to further optimize our capital structure and reflect the requirements of the business going forward.
In terms of the overall capital structure of the business, I think, you know, we're in a, you know, strong position today to consider flexibly allocate capital, and as we mentioned during the call, we'll be looking to maintaining a conservative financial profile, the net cash position at year-end. We're gonna be considering additional distributions. We've announced this morning the buyout of the minorities to accelerate their exit at this time, and we also have commitments to complete our clean ammonia CapEx, which is our obligation to deliver a fully operational project. Okay. So it sounds like you don't believe you're required to retire them, but you're gonna evaluate opportunities if it makes sense.
Okay. Thanks a lot.
Thank you. The next question goes to Aron Ceccarelli of Berenberg. Aron, please go ahead.
Hello. Hi, good afternoon. Thanks for taking my question, and, congratulations for the methanol transaction, also for the closing of IFCO. I have three questions. So my first one is, you know, after divesting more than, around $11.6 billion of assets, OCI would be mainly a stake in Methanex and the European nitrogen asset. So maybe you help us understanding a little bit what's the direction of travel here, please? The second question is on Fertiglobe. The share price of Fertiglobe is down almost 15% compared to the level of December last year when you announced the agreement with ADNOC. I was just wondering if, within your agreement, is there a clause where they could potentially renegotiate the transaction price?
My final one is on tax implication on your capital return. Just wondering if you can shed some light on how your distribution will be taxed and what's the impact for shareholders, please. Thank you.
Yeah, sure. Just kind of answering those questions one by one. I think, we're gonna share, in due course, more information around our capital allocation strategy and overall strategy, with the remaining part of the business, as, as mentioned in the prepared remarks. So we'll be sharing those probably around, you know. More information around our Q3 results is a good time frame. On the second question, with regards to share price, of Fertiglobe, I, I don't think that was-- I don't think it's 50% drop. I think it's something probably in the order of the mid-20%, drop area. But, you know, as we, you know, 20%- 25%, but as we, you know, as we mentioned, we expect, Fertiglobe to close, in Q4.
And I shared that, with, I just said that earlier in my statements. And the third question, can you repeat it again?
Sure. It was about tax implications for your capital return, your distribution to shareholders.
Yeah, I'm happy to take that. As you know, we've been able to use a capital repayment mechanism that is associated with a share premium reserve that we established upon listing our business in Holland in 2013. That has afforded us the ability to do tax-efficient distributions. I think that continues to be the mechanism that we provide as an option to shareholders to either elect between a capital repayment or a cash dividend at their discretion.
And I think for the upcoming distributions, which we have now confirmed to be at the upper end of the range of our original guidance at $3.4 billion, I think we're going, we're gonna follow the same route, and we will be sharing a more specific date in due course as we get firmer visibility on the closings that are happening right now, which are becoming imminent.
Thank you very much.
Thank you. The next question goes to Roger Spitz of Bank of America Merrill Lynch. Roger, please go ahead.
Thank you. Good afternoon. Could you elaborate more on the particular shareholder right that Proman is suing over? And does Consolidated Energy have a so-called ROFO, right of first offer, right of first refusal, and/or tag-along rights with respect to the 50% interest in Natgasoline? Thank you.
Yep. So obviously, you know, with the first question, legal dispute, I mean, it concerns, you know, these certain shareholder rights as mentioned, and we're not in a position to disclose further details at this moment with an ongoing legal dispute. And with regards to your other question, you know, details around our shareholders' agreement with, you know, Proman are private. So, you know, we're not gonna be commenting on individual shareholder rights with regards to our joint venture, particularly in light of the ongoing legal dispute.
Thank you very much.
Thank you. The next question goes to Chetan Udeshi of J.P. Morgan. Chetan, please go ahead.
Yeah. Hi, thanks. Maybe one for Hassan. So Hassan, I understand your comments on, you know, tax-free returns so far, but can we assume that whatever you do in the future in terms of incremental cash returns, you will still have that flexibility to do that without having to... for investors to not have to pay the withholding tax? Because I think there's a limit on, it depends on how much share capital you have on the balance sheet at a certain point in time, right? So the question is, after doing all these cash return that you've already announced, will that flexibility still exist for the future cash return? The second question was, do you just a broader question: Do you now have a clarity on what will be your new CapEx for the blue ammonia project?
Because clearly, that's one of the you know, key numbers that we need to have in mind as we think about potential of cash return in the future, and last point, I appreciate you will give us the strategic update along with Q3 results, but is it fair to say that you're also looking at, as we speak, strategic alternatives for your nitrogen business in Europe? Thank you.
Yeah, I'll take the first two questions. On the capital return, you are right. I mean, we did start out with a balance that has been partially consumed. So there is, I believe, a little bit around just over EUR 3 billion in terms of available balance for capital return that is usable by the company. After which, then you fall back to conventional distribution avenues. And I believe that is usually part of our public disclosures. So. And in terms of our CapEx guidance, we would estimate that as of June, probably around north of $700 million remains. And we cannot be very specific at this time.
So obviously a bit of a moving target, but I would say comfortably north of $700 million remains on the CapEx to complete clean ammonia. Of course, you know, as we continue to own the business, the OCI Methanol business as well, you know, the cash flows of that business belong to OCI, and we have CapEx commitments there as well. Yeah, those are in the Methanol business. Yeah. Mm-hmm.
So the methanol business obviously continues to be under our ownership until the transaction closes, which is expected to be sometime next year. On the third question? I think your third question was with regard to, you know, updates and everything with regards to OCI and, you know, same as before with on, you know, the strategic review. We'll share updates on the strategic review in Q3, and as we stated earlier, more visibility on kind of future strategy, including capital allocation, you know, investment strategy, et cetera in Q3.
Thanks. Hassan, can I confirm? I'll look it up myself as well, but 3 billion headroom that you are talking about in terms of cash return, is that before the announced returns, or is it post the announced return of 3.4 billion?
Sorry, can you repeat that question? The line was cutting out.
I was just saying, you mentioned this share capital flexibility of just over EUR 3 billion. Is that after all the cash that you intend to return next month, or is that prior to that?
Prior.
Okay, got it.
Thank you. The next question goes to Sashank Lanka of Bank of America, Merrill Lynch. Sashank, please go ahead.
Yes, thank you very much for the presentation. I have two questions. The first one is just related to the transaction, the methanol transaction. Do you foresee any antitrust issues? That's the first question. And second question is, is it possible to disclose a remaining core net debt number, assuming this methanol transaction is complete? Thank you.
Yeah, with regards to the first question, I mean, it's gonna go through the typical regulatory approval process in the U.S., Europe, and the United Kingdom. And, you know, we feel confident about this process as this methanol, Methanex. You know, given methanol is a globally traded commodity, and it's widely traded. You know, in terms of the commodity itself, it's very easy to move. These assets sit in the U.S. Gulf Coast, which is exposed to imports. Also, exports come out of the U.S. Gulf Coast. The cost curves are generally very flat, and ammonia and methanol, you know, quite crowded on a sales and distribution market perspective, and quite interchangeable, where you're able to kind of change tanks and vessels to be able to move it around the world.
So the globally traded seaborne nature of the commodity, you know, put in a good position with regards to regulatory approval process, which, as we've stated, is expected in the first half of next year.
Yeah, in regards to your net debt question, as of June thirtieth, which was the last set of results that we shared with the market, our net debt position was around $2.2 billion. But as you've seen, we've announced a notice for redemption of the 2025 that have become current in October. And in the meantime, we've also used the proceeds received to zero out our revolver facility and other short-term financing instruments that we had in our books. So that figure obviously will... And that's excluding IFCO, which of course was defeased as part... That was settled as part of the transaction.
We pretty much have had a significant reduction in gross debt as a result of the transaction, the closing of IFCO.
Okay. Thank you very much.
... Thank you, and as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. If you have joined by the webcast, please use the chat box on the bottom right of your screen. And the next question goes to Tiffany Serfaty of Jefferies. Tiffany, please go ahead.
Hi. Thank you very much for the presentation. Two questions on my side. So you mentioned a 20%-25% drop in the Fertiglobe share price earlier. Can you elaborate how that may work? And then the second one, can you also elaborate on the future value, accretive investment opportunities that you mentioned on slide 9, especially with respect of the quantum of any net cash position that you expect to maintain? Thank you.
Can you repeat that second question again? It wasn't entirely clear to us.
Yeah. So can you elaborate on the future value, accretive investment opportunities that you mentioned on slide nine?
Sure. Okay. So, I'm not sure actually with even your, your first question. It's just I think I was responding to a question earlier where someone assumed that there was a 50% drop in Fertiglobe shares since the deal was signed in December. And, like we said, the, you know, I think it's more like a 20% to 25% drop. So, not sure what to comment on it, around, you know, speculating around the reasons behind the drop. But as mentioned, we expect to close Fertiglobe in Q4 and pay a dividend in November, as Hassan went through.
Yeah. Notwithstanding, of course, that also the... In the instance of the Fertiglobe transaction, the economics of that deal stopped accruing to OCI as of the signing date in December, other than the $100 million dividend that we received earlier in the year, attributable to the period prior to the transaction signing. So, that transaction was ring-fenced from the time of signing effectively, other than the dividends.
Okay. Thank you.
So with regards to your second question, I mean, I think, as we said on future allocations, investment strategy, et cetera, we'll provide more clarity on that in our Q2 results, which is in November. You know, but, you know, we're gonna be focused on closing the transactions which we've signed earlier, including Clean Ammonia and Fertiglobe here in short order, and obviously the process for you know the closing in H1 of next year for Methanex.
Okay. Thank you.
Thank you. We have a follow-up from Aron Ceccarelli of Berenberg. Aaron, please go ahead.
Yes, thanks for taking my follow-up. It's on the repurchase of the minorities. Is it fair to assume that you are going to repay the minority in cash, or are they rolling into the Methanex stake? So in other words, the $1.2 billion net proceeds that you mentioned in your slide, is it comprised of the $450 million plus the cash, or is part of the $450 million that comes from Methanex actually going to the minorities?
No, it's a good question. Your assumption is correct. It's going to be a cash buyout, given that this is happening imminently, while obviously the transaction with Methanex is subject to a regulatory approval process.
Understood. Thank you.
Thank you. The next question goes to Charles Spelina of Lord Abbett. Charles, please go ahead.
Hi, thanks for taking my question. Can you please disclose whether you expect the RemainCo to be investment grade rated?
It's a good question. We've addressed that question in previous calls, and I think our answer remains the same. You know, we continue to exercise a very prudent financial policy going forward. However, it is really up to the agencies to react to the somewhat change in profile that the company is going through. We have been very transparent and constructive and keeping them up to speed on the progress and our plans. So I think we will potentially hear imminently from them, you know, where they stand in terms of how they view the company.
Thank you. But is it your intention to maintain IG ratings?
I mean, it's our intention to remain quite conservative in our financial policy, but whether that is sufficient to satisfy their view of an IG status, that's something that honestly, we don't know at this stage.
Thank you.
Thank you. We currently have no further audio questions. I will now hand back to Sarah to go over any webcast questions.
It will.
Sarah, over to you for any webcast questions.
Oh.
There are no further questions at this time.
Great, thank you. It appears we have no questions on the line. I will now hand back to Ahmed El-Hoshy for any closing comments.
Thanks, thanks, everyone, for joining this call, and thanks for your questions. You know, once again, we're really happy with this transaction that we announced yesterday, and the move of the assets and our people to the Methanex team. We're very optimistic about the future there and looking forward to being a shareholder at Methanex, post-closing. Thank you.
Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.