Short Sellers Ramp Up Bond Wagers Against Jim Ratcliffe’s Ineos

(Bloomberg) — Short sellers have begun targeting debt issued by Ineos, as the chemicals giant owned by billionaire Jim Ratcliffe gets pulled into broader concerns about the sector.

Wagers against a €800 million bond — issued by a unit of the firm and maturing in 2031 — have soared to 20% of the issue value as of Monday from almost nothing in late September when it began trading, according to data compiled by S&P Global Market Intelligence.

It’s proven to be a profitable strategy so far, with some of the firm’s bonds falling to record lows this month while the cost of insurance against default has recently surged.

Market participants say the bonds are struggling to find a bottom as Europe’s chemical industry faces cost headwinds and competitive pressure from abroad. Just this week, S&P Global Ratings — a separate part of the US financial firm — lowered the outlook for two of Ineos’s financing vehicles to negative, warning that the timing of a wider recovery in the sector is uncertain and that leverage at the group could rise as a result.

Ineos didn’t immediately respond to requests for comment.

The European chemicals industry is mired in its longest downturn in decades, squeezed by high energy costs, weak demand and a surge in inexpensive imports, mainly from China. Reflecting its competitiveness issues, the region’s share of global chemical sales has more than halved over the past 20 years, falling to 13% in 2023 from 28% in the early 2000s, according to data compiled by industry group Cefic.

“It is a very difficult situation right now” for the industry, said Sebastian Satz, a Citigroup Inc. analyst. “US tariffs have caused further uncertainty and have also led to increased import pressure that originates from the oversupply in China.”

Ratcliffe’s group has begun to respond. It plans to cut several hundred office jobs at its car-making unit, has started laying off workers at a chemical plant in Illinois and is closing an Ohio plastics facility. Motorcycle jacket maker Belstaff has already been sold.

It’s also filed or is planning to file what it described as 10 major anti-dumping cases with the European Commission, saying the chemicals sector “is being drowned by a tidal wave of low-cost imports.”

Ineos, which Ratcliffe co-founded in the 1990s, is particularly vulnerable to souring sentiment on the chemicals sector as the size and liquidity of its debt pile makes it an effective proxy for the wider industry for traders.

Amid the sector’s worsening outlook, about €4.5 billion of Ineos loans fell into distressed territory earlier this month.

Ineos’s difficulties have meant that Ratcliffe’s personal fortune has nearly halved to about $15 billion from its peak in 2021, according to the Bloomberg Billionaires Index.

The group has no major debt maturities next year, but Ineos Quattro — a unit focused on petrochemicals — has about €1 billion ($1.15 billion) of bonds and loans coming due in 2027. Current interest rates and trading levels imply that these loans will have to be refinanced at a much higher cost. Bonds issued by that unit have also seen increased negative bets.

Short sellers trade borrowed securities because they expect to buy them back at a lower price later. The wagers are often paired with long bets on related assets, making it difficult to calculate their true returns.

Late last month, S&P’s ratings arm cut its forecast for part of the group’s 2025 earnings before interest, taxes, depreciation and amortization by 20% to €1.6 billion, citing challenging market conditions including subdued demand.

Still, the amount of cash on the balance sheet of both Ineos Quattro and Ineos Finance — the unit that issued the €800 million bond that’s now trading just below 87 cents on the euro — could allow them repay nearer-term maturities with those funds, at least in part. That liquidity could be an edge.

Ineos Quattro and Ineos Group “are arguably the best positioned to be the last producers standing in Europe when the dust eventually settles,” JPMorgan Chase & Co. analysts Aaron Rosenthal and Elle Boyd wrote in a note last month that downgraded the debt. “If that is the case, then both structures will offer better entry points down the road.”

With Europe struggling, Ineos has been actively investing in the US. Last year, it purchased CNOOC International Ltd.’s Gulf of Mexico business. Its third deal in as many years increased its total capital spending from the deals to more than $3 billion.

While Ineos benefits from US oil and gas assets, that business isn’t enough to compensate for weakness in petrochemicals, S&P wrote in June.

Bloomberg Intelligence expects the group’s earnings to improve modestly next year, according to senior credit analyst Timothy Riminton. While the costs of building an ethane cracker in Belgium means leverage will keep rising, that project should bolster profits significantly from 2027, he added.

“We view this as a crucial, and positive, deleverage catalyst for the group,” Riminton said.

–With assistance from Isis Almeida, Kiel Porter, Jamie Nimmo, David Hellier and Luca Casiraghi.

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