Consolidated Energy – As Straightforward As Ever - Model Update
All,
Please find our updated analysis here.
Consolidated Energy (CONSEN) is never dull, and the last three months have seen the Proman loan being repaid with a mixture of cash and assets, and a new TLB signed to fund the repayment of the USD250m May 2026 SUNs. Operationally, there have been some minor issues and some gas curtailments in Trinidad, but these were minor, and CONSEN rarely has a straightforward quarter. The FY 2025 results should be put around the end of the month, and we will update further.
Investment Rationale:
- We are maintaining our 5% long position in the EUR625m 12% 2031 SUNs; we entered the trade at 92c/€; the bonds are now trading at 95.6 c/€ 12.5 %. We see 10 points of upside (with the bonds trading at 10.5%) in the next 12 months. If the global economy weakens, there are five points of downside with the bonds trading to previous wides of around 16%.
- The repayment of the Proman loan and the new USD330m TLB address the maturity concern (May 2026 SUNs), and the corporate governance issues around the loan to the parent entity Proman. The other CEL SUNs will be layered by the new TLB (around 0.4x turn), but the removal of the maturity, and the additional liquidity are positive.
- We expect leverage of below 5.5 x by the end of 2025. The company has said that $700m is a reasonable EBITDA target; we view that as on the high side (our 2025 forecast is $636m).
- There is significant asset coverage here. Our DCF EV is $4.7bn, and with $3.4bn of net debt, the LTV is 70%. However, the entire Natgasoline production is sold at a discount to subsidiaries of Proman and OC; this arrangement removes the marketing costs and risk that would otherwise fall on Natgasoline, but could reduce the cash flow at Natgasoline and the DCF valuation.
- Lower oil prices will lead to lower methanol margins, and the recent weak oil prices will dampen margin growth in 2025. The level of correlation is not clear from publicly available data.
- The relationship with the owner (Proman) is opaque. CE provides loans and guarantees to its parent, but financial disclosure at the parent level is poor, and the bond docs are weak.
- Cash flow is volatile due to planned and unplanned outages => Even in strong markets, the bonds will be volatile.
Key Conclusions:
- The assets have significant value even if Consolidated Energy became liquidity impaired. In our DCF/Asset Value sections, we estimate LTV at 68%. However, the Natgasoline asset is undervalued as 100% of production is sold to subsidiaries of OCI and Proman at a discount to the market price (as mentioned in the Methanex Sale section).
-Ownership is opaque, and governance is weak.
- Contracted access to Natural gas feedstock in T&T and limited additional supply is supportive of prices in the near term.
- Our Model shows that RCF is sufficient to temporarily cover cash flow shortages.
- The current tariff issues should not impact the company severely, but the general weakness in the economy will hurt performance.
- We are not concerned with liquidity at Consolidated Energy; there is >$200m of RCF ability within the structure and $300m in cash on hand (as discussed in our Liquidity section)
- Our Industry and Company sections highlight that the industry is commoditised, but Consolidated Energy’s plants are at the lower-cost and more efficient end of the spectrum. In addition to turnarounds every four years, production can be shut off due to failures (Natgasoline was down for two months in Q4) (Industry section)
- Production is volatile, unplanned outages are usually insured, but cash flow timing can be impacted.
- OCI has sold its share (50%) of Natgasoline to Methanex (as part of a wider disposal of its Methanol business). We expect Methanex to eventually want to operate the plant and own it, but we do not expect this to happen in 2025. We value the Natgasoline stake at over $1.1bn. Consolidated Energy currently consolidates Natgasoline as it operates the plant, but that would change if Methanex negotiates to become the operator and pays compensation. (OCI asset sales section).
Recent Trading:
Q3 Saw some gas curtailments in Trinidad, but otherwise results were in line with our forecast:
- Outside of the T&T Methanol business, Q3 results were at or above our expectations, and Management expects the impact of curtailments in Q3 (in T&T) will be reversed in Q4. CONSEN favoured the UAN business with natural gas during the quarter as margins were higher. We expect the $227m May 26 SUNs will be repaid by additional Senior debt (either additional TL B or possibly an SSN). Repaying the 2026 SUNs with senior debt layers the remaining SUNs, but we still see these remaining SUNs as covered by the value of the assets.
- Management denied any intention of selling its 50% stake of Natgasoline to Methanex or ceding operational control for a fee. We still expect Methanex to want to purchase control eventually, but do not see this as imminent. We have been sceptical about the repayment of the $280m loan to Proman in December, and nothing on the call changed this.
New TLB to Refinance 2026 SSNs:
- The new USD 330 million TLB will fund the calling of the remaining USD 223 SUNs. This will layer the remaining outstanding SUNs with approximately 0.3 times senior leverage. However, relief at the removal of the liquidity overhang more than balances the additional leverage. The consolidation of CNC and N2000 will add approximately USD 120 million of LTM EBITDA, increasing the reported figure to USD 720 million. This reduces total net leverage on the consolidated level to 4.9x.
- The repayment of the Proman loans will also remove some of the governance concerns. We view asset value as covering debt at CEL, but we acknowledge that Proman may still seek to leverage its control of CEL for further investments, such as the Ammonia plant in Sinaloa. There are already plans for Methanol and Urea production facilities in Sinaloa, which would replicate the investments Proman has made in the Point Lisas Industrial Estate in Trinidad. We will continue to monitor how Proman finances these investments.
The Proman loan was repaid with a mix of cash and assets:
- The multiple paid for the stakes in CNC and N2000 is at the high end of what we would expect, but not outrageous. The $100m cash that Proman is also paying will help the $227m May 2027 maturity. CONSEN may call this SUN in Q2 to prevent it from becoming current, but the company has been willing to wait until liquidity is stronger, and if the lending banks are amenable, could do so again. There is an investor call scheduled for 10th February to review the details of this transaction; however, the details are not yet available.
- The $424m intercompany loan to Proman is being repaid via $100m in cash from Proman and its stakes in Caribbean Nitrogen Company (30.3%) and N2000 (27.2%). The equity stakes are valued at $373m, and subsequently CONSEN will consolidate both companies (CNC 72% stake, N2000 67%).
- We estimate FY25 CNC EBITDA at $50m and N2000 at $60m => $31m of EBITDA. CONSEN will also gain control and consolidate cash of $74.7m. The effective multiple is therefore around 9.5x. Given that Nutrien has shuttered its own Nitrogen plant in Point Lisas, a valuation of 8.0x is more in line with our analysis.
I look forward to discussing this with you all,
Aengus
T: +44 203 744 7055