About Mr Anil Chandramani, Chief Investment Officer & Global Sector Lead, Chemicals & Fertilizers, International Finance Corporation (IFC)
Prior to joining IFC, Mr Chandramani was Vice President in Fuji Bank’s Project Finance Division in Singapore. He was previously Financial Economist in the World Bank Group in Washington DC, where he worked on policy issues with governments focusing on Private Sector and Financial Sector Development issues as well as on Investment Promotion in emerging markets. Mr Chandramani was also with Citibank in India and started his career in the Tata Administrative Service of the Tata Group of Companies in India after completing his studies at the Indian Institute of Technology and the Indian Institute of Management.
1. What would you say are the key trends and challenges for petrochemical and refining companies, in this era of energy abundance? How can they meet sustainability challenges and still remain profitable?
The key challenge for petrochemical and refining companies is to remain competitive. Sustainability is a goal that is growing in importance. In addition to that, the industry faces challenges with respect to both demand and supply. The pattern of demand growth is changing. In the recent past, much of the growth in petrochemical consumption and even fuel consumption has come from emerging markets, particularly the BRICs countries (Brazil, Russia, India, China). In fact, consumption of gasoline is declining in the US and Western Europe.
As the next step in this evolution, we will see demand growth also come from countries in Africa as their populations and GDP grow. Companies must not only seek to maintain their positions in their existing markets in the developed world, but also keep looking at new markets. On the supply side, new supplies are coming from the US. So, competitive pressures are also changing. No company can take it for granted that its position in the global markets is safe. To ensure that they remain profitable, they must get the right skills set and the right people who know about emerging markets so they can get create an advantageous market position.
2. Unconventional gas discoveries in North America have resulted in cheaper feedstock and reinvigorated the US petrochemicals industry. What is your outlook for the US petrochemicals industry and what impact will possible US energy exports have on the industry?
The outlook for the US petrochemicals industry is very positive. Cheap shale gas can make the US very competitive. Yet there are several factors that need to be looked at carefully.
Sustainability is a challenge. We would not like to see any environmental disaster that can be traced directly to fracking, as this would create big pressures for the industry. The other challenge could come from decisions taken by the US Government about pipelines, LNG export terminals, converting public transport and trucking fleets to CNG, for instance. All these decisions will impact the availability and price of gas in the US.
At the same time, many other countries such as China, Russia, Argentina, maybe Poland, are also seeking to expand unconventional sources of gas supply. Thus while the outlook for the US industry is very positive in the short term, it is by no means something any company can take for granted in the medium-to-long term. Once again, the focus has to be competitiveness and managing risks. US and European companies alike must constantly ask themselves: What risks could my company face, and how do I prepare our company to manage the risks successfully? That is the difference between a winner and an also-ran.
3. The Southeast Asian petrochemical industry is also growing, with an inflow of investment from the Middle East. Besides the availability of fresh feedstock for industrial use, what factors make Southeast Asia attractive to petrochemical companies and which ASEAN countries have the most potential for petrochemical manufacturing?
We can assess this issue from several points of view. First, demand and market. Obviously Asia is growing very fast, faster than most other regions. The ASEAN region is very well positioned with greater trade integration leading to expanded opportunities for companies in the trading block. As labor costs and energy prices rise in China, Chinese companies are offshoring some manufacturing to countries like Vietnam and Cambodia. This kind of flexibility will allow the region to maintain its competitiveness in the face of pressures from the US and the Middle East. However from the point of view of finance and currency, this situation is more volatile. Right now several Asian currencies such as the Indonesian Rupiah, the Indian Rupee and others have fallen hard. Yet overall, on the balance, the region is well placed to take advantage of, say, LNG exports from the US.
4. In terms of identifying risks, what are some of the main challenges that companies are facing today as they grow globally?
One of the main risks companies face is political risk in unfamiliar markets. Each new market has a different culture and success factors may vary - China works differently from India, which in turn is very different from Brazil.
Political and cultural understanding is what companies need to acquire. If they are serious, they will acquire the right skills and resources to lead their efforts in these markets. Another challenge they face is financing: they might not have local banking relationships; they might not know the local stock markets. During the Euro-zone crisis over the last few years, European banks have been forced to retrench assets and cut exposures considered more risky, especially in emerging markets. Medium-sized European companies operating in the emerging markets therefore have been hit hard.
Yet another challenge some companies face is with regards to rules and regulations. It is not the same landscape. Things they take for granted in their home countries, in developed countries, may be variables in emerging markets. They have to adjust to a different kind of competition. These and other challenges of succeeding in new markets are what I would be discussing in my presentation at the SIEW conference.
5. What is the value of IFC’s investments in the global chemicals and fertilizer sector? What value does IFC bring to petrochemical companies when it invests in them?
The full year ended June 30, 2013 was a record year for us. IFC invested more than US$820 million in debt and equity in the Chemicals, Petrochemicals and Fertilizers industry worldwide from its own balance sheet. In addition, IFC mobilized about US$630 million in financing, primarily debt, from other parties, giving a total of about $1.45 billion for the industry. On a year-to-year basis, IFC expects to average between $1 billion and 1.25 billion. IFC is a long term player on both the debt and the equity sides. We like to form long term partnerships and exit an investment when the company has stabilized. Our goal, in addition to making good investments, is to create successful companies that promote the host country while following sustainable standards of development. At the SIEW conference, I will discuss and explain why IFC is such a valuable partner for companies that are making investments in emerging markets: how we can help them identify risks and mitigate them so that their probability of success goes up