Chemours refutes bankruptcy predictions

By Kasia Patel
Published: Monday, 18 July 2016

Chemours accused of moral and financial bankruptcy with high debt and environmental liability issues. The company points to Opteon as shining star in business.

Titanium dioxide (TiO2) and fluorochemicals producer The Chemours Co. has refuted accusations made by Citron Research, which said the company was "a bankruptcy waiting to happen" owing to its high debt and environmental liabilities.

In a statement released by the company, Chemours said it "strongly refutes the report by Citron Research" pointing to its "five-point transformation plan" which was launched shortly after it was spun-off from parent company DuPont in July last year.

Announced in 2013, Chemours said that, since the spin off, the company had taken "swift and decisive action under this plan and has already delivered significant cost reductions while strengthening its liquidity position", adding that it was making major investments in key growth initiatives.

Environmental liability

However, its rebuttal failed to address a number of other issues raised by Citron Research, including the environmental liabilities the company may potentially face as a result of Dupont’s previous activity in the sector.

In August last year, an Ohio woman was awarded $1.6m after alleging that DuPont had contaminated drinking water and contributed to the development of her kidney cancer. The lawsuit could influence thousands of similar cases over the discharge of perluorooctanoic acid, or C-8, a chemical used to make Teflon.

According to Citron, "the whole purpose of Chemours’ existence was so DuPont could rid itself of the black hole of environmental liabilities that will drag down the company for years if not decades to come".

The research firm pegged Chemours’ potential environmental costs at $5bn for medical monitoring, clean-up, compensatory and punitive damages to victims and legal fees.

It added that cases in the Mid-Ohio Valley are just the "tip of the iceberg" and that damages are likely to span across 171 sites in the US in addition to worldwide locations.

Chemours, however, told IM that "while a series of trials related to C-8 (also known as PFOA) began in September 2015, DuPont is the named defendant in these cases".

"Chemours may be required to indemnify DuPont based on the separation agreement executed before the creation of Chemours through the spin-off of DuPont Performance Chemicals," the company added, but failed to elaborate further.

According to the company’s website, while DuPont is the named defendant in the cases – six which are expected to go to trial by the end of 2016 – Chemours is now responsible to DuPont for the lawsuits going forward.

Chemours said it is confident that DuPont acted reasonably and responsibly at each stage in the history of C-8 and will continue to vigorously defend against C-8 lawsuits.

Following the 2004 Leach Settlement – a class action, Leach v. DuPont, filed in West Virginia in 2001 and settled in 2004 – an independent Science Panel was charged with determining whether there was any probable link between PFOA among class members and human disease.

After years of study, the panel found probable links to six conditions in 2011 and 2012; pregnancy induced hypertension, kidney and testicular cancer, ulcerative colitis, thyroid disease, and diagnosed high cholesterol.

No bull case

In its research note, Citron said it had attempted to put together scenarios with a positive outlook for Chemours but had "come up empty handed".

While pigment producers are struggling to implement price increases across the board both in China and in the rest of the world, Citron has argued that a best case scenario for 2016 would be a stabilisation in prices and that Chemours is unlikely to see much growth in this area, as the recent price rises by major TiO2 producers do not come close to recouping the decline in global prices over the last two years, which amount to more than $1,000/tonne.

Against a backdrop of declining net sales and profit – Q1 sales fell to $1.29m, compared with $1.36m the previous year, resulting in gross profit decreasing to $202m from $252m the previous year – Chemours has emphasised increasing uptake of its Opteon product as an area of growth.

In May, Chemours announced it would be investing in new Opteon capacity, with expected start up in the US and EU in 2018, tripling its capacity for low global warming potential products for mobile air conditioning and refrigeration applications.

However, Citron criticised this strategy as simply replacing current business, while the company’s transformation plan was described as "merely corporate reshuffling".

"Opteon sounds great, until you realise that it’s simply a replacement for R134a, which is also Chemours product, so it’s simply a cannibalisation of existing business lines and existing EBITDA*," Citron said.  

Chemours declined to comment on its outline for TiO2, Opteon or criticism of its transformation plan when contacted by IM.

*Earnings before interest, taxes, depreciation, amortisation