Nynas AB disclosed details and the next steps surrounding the companys reorganization efforts last week, including an attempt to change its ownership structure to escape sanctions that have undermined its profitability for over two years.
Nynas, one of the worlds largest suppliers of naphthenic base stocks, filed for reorganization in Swedish court on Dec. 13. The company, a joint venture between Venezuelan national oil company Petroleos de Venezuela S.A. and Finnish refiner Neste, said United States sanctions against PdVSA eroded its profits.
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Those sanctions, issued in August 2017 by the U.S. Office of Foreign Assets Control, prevented anyone from extending credit to PdVSA in U.S. dollars for longer than 90 days. The sanctions also cover entities controlled at least 50 percent by PdVSA, which includes Nynas at 50.001 percent.
While the sanctions did not prevent Nynas from purchasing Venezuelan crude oil nor impacted Nynass sales, they did result in increased indirect costs for purchase and production of such crude oil.
In January 2019, the U.S. then placed PdVSA on OFACs Specially Designated Nationals list, which in practice prevented PdVSA, and thus Nynas, from dealing with American entities and transacting in U.S. dollars. The pricing in the oil industry is mainly done in USD and USD is also the currency mainly used in transactions in the oil industry, both as regards [to] crude oil and after the crude oil has been refined, explained Nynas. The designation of PdVSA as an SDN thus severely impacted the operations of Nynas.
Nynas was able to secure an exemption to the January 2019 sanction, but when the exemption was extended in October 2019, the company was then prohibited from purchasing Venezuelan crude oil. The August 2017 sanctions are also still in effect.
These sanctions have both forced Nynas to change its source of crude oil supply, which has been more costly than procuring Venezuelan crude, and led to banks refusing to participate in transactions involving Nynas at the risk of secondary sanctions and potential violation of compliance rules. This means Nynas has been, at times, unable to make or receive payments and has not been able borrow money since mid-2017.
Although Nynas said when it first filed for reorganization that it had developed a plan to return to profitability in three years, its banks were not persuaded to adjust the terms of the companys loans, and subsequently blocked Nynas from accessing its accounts.
Those bank accounts have since been reopened so the company can pay off certain expenses it incurred since Dec. 13, Nynas said in a letter to its creditors published Jan. 3.
As part of an effort to achieve a successful reorganization, Nynas is seeking to change its ownership structure to avoid the sanctions. The majority shareholders of Nynas, Neste and PdVSA, have agreed to a proposed change that could potentially accomplish that, and sent the proposal to OFAC on Jan. 17. The company said if it gets a written confirmation from OFAC that such a change in ownership will no longer subject it to sanctions, it will go ahead with the restructuring.
Nynas did not disclose the proposed changes, but any restructuring would likely leave PdVSA with less than a 50 percent stake in the company. The new structure will be communicated at a later stage, Nynas Communications Director Hans Ostlin told Lube Report, adding that the company believes its proposed changes will be enough to escape the sanctions.
A relief from the sanctions would imply considerable advantages for the operative business, since transactions in USD would once again be possible and since Nynas would be able to borrow funds without the limitation as to time and other restrictions, the company said.
Nynas outlined other steps it would take as part of its reorganization, including a moratorium for payment of all unsecured claims prior to and since the company filed for reorganization on Dec. 13.
Another step is to secure additional financing for the companys day-to-day operations. The company explained it only has enough oil stocks to cover up to March of this year, even as its refineries have cut back on production. Nynas has asked an investment bank to help find potential investors to secure Swedish krona 1.5 billion (U.S. $156 million) by the end of the month to purchase more oil and maintain production volumes.
The company warned that failure to secure funding for more crude oil would have devastating consequences for the road maintenance and construction industry in the Nordics for 2020. Nynas also manufactures asphalt.
The company said its production facilities are adapted for the use of Venezuelan crude oil, and it would have to invest in the refineries to make it possible to produce all of its products using other crude. That work totals approximately 500 million SEK, according to the Nynas.
The company noted that even if OFAC would no longer subject it to sanctions following an ownership restructuring, it would likely still not be able to purchase Venezuelan crude oil due to the risk of secondary sanctions.
Despite its financial troubles, Nynas said that it does not plan to reduce its workforce at this time.
Companies based in Sweden that are facing financial trouble and looking to avoid bankruptcy can file for a company reorganization, a type of administration where court-appointed administrators work to restructure the firm. Companies must be deemed to have long-term business sustainability to enter reorganization, and it is only an option if the company is unable to pay its overdue debts. The process provides conditional protection against bankruptcy and imposes a moratorium on enforcement of existing agreements.
Nynas revealed that it has assets totaling 12.5 billion SEK in value before depreciation of fixed assets, shares in subsidiaries and stock, while its liabilities totaled 11.4 billion SEK.
Nynass reorganization is scheduled to continue through March 13, though the company can request beforehand that reorganization continues for another three months afterward. Our objective is to finish the reorganization process during this spring, said Ostlin.
Nynas operates two naphthenic base oil plants in Europe: a 400,000 metric tons per year facility in Nynashamn, Sweden, and a 330,000 t/y plant in Harburg, Germany.