Wanhua to the rescue of BorsodChem

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One year ago, China-based Wanhua Industrial Group (Wanhua) acquired a majority share in Hungarian isocyanates producer BorsodChem, turning the company into one of the world’s top three isocyantes producers.

Jiansheng Ding, Wanhua’s leader, took over as CEO of BorsodChem on January 1, 2012 and set out to turn it into Wanhua’s European bridgehead. Wanhua took full control of BorsodChem in February last year by exercising a call option which it was granted as part of BorsodChem’s financial restructuring in June 2010. Wanhua acquired all shares held by Permira and Vienna Capital Partners (VCP), BorsodChem’s previous majority owners on February 1, 2011.

As a result of the buyout, Wanhua Group has become the second-largest isocyanate producer in the world. According to ICIS data, Bayer’s global annual combined total methyl di-p-phenylene isocynate (MDI) capacity is 1.245m tonnes/year followed by Wanhua Group’s 1.1m tonnes/year.

FIRST STEPS

“I am convinced of the future benefits of our partnership, sharing industry know-how and driving genuine synergies,” says Ding.

Wanhua has had a sales office in the Netherlands since 2006, but BorsodChem was the company’s first step to establish a production base in Europe to manufacture and sell its products in the mature market.

BorsodChem has three production facilities in central Europe. One of them is in ­Kazincbarcika, Hungary, another in Ostrawa, Czech Republic and a third in Kedzierzyn Kozle, Poland. The Polish plant produces aromatic hydrocarbons in crude benzol and petrochemical fractions. The Czech plant’s main products are aniline, cyclohexylamine, ­dicyclohexylamine and diethyloxalate.

Since the takeover, BorsodChem’s Hungarian plant has become Wanhua’s main European asset to produce and distribute polyvinyl chloride (PVC), MDI and toluene ­di-isocyanate (TDI).

“Most of our products sold in Europe are from BorsodChem, manufactured here locally,” says Ding. He helped develop many cutting-edge technologies which Wanhua plans to install at BorsodChem in Kazincbarcika to make the plant more energy efficient and ­environmentally friendly.

“Wanhua has injected substantial capital into BorsodChem as well as investing in high-end technology, talent and teams. Our aim now is to make this asset more productive and to improve profitability,” says Ding.

The €140m capital injection from Wanhua came at the best time for BorsodChem, which had been struggling since the financial crisis of 2008. The deal also involved a €1.1bn financing agreement between BorsodChem and the Bank of China. Its previous owners, Permira and VCP, purchased the company for a reported €1.6bn in 2006, but soon after the crisis hit the company badly. Wanhua started buying up tranches of BorsodChem’s debt so that it could have a say in the restructuring of the company. At the time, Wanhua was ­planning to build a new plant in Europe and saw the opportunity in BorsodChem, so it offered to take the company over.

“History is a one-way street, and we cannot look back and tell what would have happened, but based on information we have, BorsodChem could have had a worse fate was it not for Wanhua,” says Ding.

The acquisition saved the jobs of 2,700 ­people who were very emotional when they learned that the company would be saved from closure. “2,700 people’s whole life depends on the company, and I am determined to lead it out of this difficult time,” adds Ding.

As a first step, BorsodChem was restructured, and its sales office integrated into Wanhua’s global sales team to improve communication and increase sales. The company also carried out a major expansion at its MDI facility to increase production capacity to 240,000 tonnes/year from 150,000 tonnes/year. It also completed the idled TDI-2 project with an investment of €200m. The new TDI-2 line has an annual capacity of 160,000 tonnes, which can be increased to 200,000 tonnes/year depending on demand. As a result of the expansion works, BorsodChem’s total TDI and MDI capacity stands at 250,000 tonnes/year and 300,000 tonnes/year, respectively.

“The new lines are running well, and our teams and sales managers are more optimistic. We now feel we are going the right direction,” says Ding. As demand for most of BorsodChem’s products is influenced by the construction sector, the current downturn in the building industry has affected BorsodChem as well, although Ding believes the company’s modern product portfolio will pull the e_SDHpcompany through this difficult period.

OPPORTUNITY KNOCKS

The firm hopes to capitalize on reconstruction and insulation projects currently popular in Europe and other parts of the globe.

The popularity of polyurethane and rigid rock wool insulation – major end-products of MDI production – is increasing, so MDI ­demand will be steady in the longer term regardless of the level of new construction projects, Ding argues.

Global trends to have low carbon ­economies, to save energy and insulate buildings will play a key role in future polyurethane demand. In this regard Wanhua’s long-term view of the industry is very optimistic. “We are strategically positioned in central-eastern Europe and we think growth will return to the whole of Europe, so we are optimistic,” says Ding. Already built houses will still need polyurethane and rigid rock wool insulation for upgrades and refurbishments so current trends in housing and insulation markets are in favor of the TDI and MDI industry, says Ding. In addition to the production improvements, waste is reduced and manufacturing has been made more environmentally friendly at BorsodChem. For example, in the Czech Republic, wastewater is reused, and in Kazincbarcika, hydrochloric acid (HCl) is recycled, which will contribute to lower ­production costs in the long term.

In the pipeline, there are many other plans. For example, BorsodChem is working on developing specialty products and to offer tailor-made items for its customers. When the time is right, it may even further expand in Europe, says Ding. However, for now Wanhua is still digesting the BorsodChem acquisition and it is not planning any future purchases. Expanding is not important for the moment, it is more important to enhance profitability to have a better asset utilization, enhanced production and profitability, adds Ding.

According to Ding, managers at the ­Hungarian plant are now more hopeful and feel part of the larger family because there is more information sharing. “They now see the light at the end of the tunnel and work together to recover and pass through a difficult time,” concludes Ding.

CEO Jiansheng Ding

DING’S CAREER AT WANHUA

Under Jiansheng Ding’s leadership, Yantai Wanhua has become one of the world’s largest MDI producers and the biggest European TDI producer after its takeover of BorsodChem in 2011.

Ding began his career at Wanhua in 1982, working for the department of research and development of isocyanates. He has been CEO of the Wanhua Industrial Group and chairman of the board of directors of Yantai Wanhua Polyurethanes (Yantai Wanhua) since 1998. He is also chief scientist at the company. Yantai Wanhua – a division of Wanhua Group – grew from a workshop with assets of less $15m to become a major blue chip company with an average market capitalization of €4bn.

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