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The Chemicals sector has been suffering from geopolitical tensions since Russian invaded Ukraine four years ago. Now with US President Donald Trump’s war in Iran and ongoing worldwide tariffs, volatility is higher than ever.
In this episode of Distressed Diaries, our host senior reporter Bianca Boorer sits down with Kunal Shah, the founder and chief investment officer of London-based hedge fund PVTL point, and his partner and member of the investment team Ryan Flew, to discuss how the latest conflict in the Middle East is impacting the sector.
What is the sector doing to cope with these challenges? Are European governments doing enough to help? Is UK chemicals producer INEOS out of the woods yet? Where do opportunities lie for distressed investors in this uncertain environment?
Tune in to find out!
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Bianca Boorer:
Scratching your head over the latest, complicated restructuring? Wondering whether Europe will continue to follow aggressive US tactics? Well, tune in to Distressed Diaries, a podcast where we dig into companies that have taken a turn for the worst. I'm Bianca Boorer, Senior Distressed Reporter at 9fin. In this series, we will explore how companies have ended up becoming over-levered and, more importantly, how they plan to right-size their balance sheets.
Today, I'm sitting down with Kunal Shah, the founder and Chief Investment Officer of London-based hedge fund PVTL Point, and his partner and member of the investment team, Ryan Flew, to look at distress within the chemicals sector. Thanks for joining me today, guys.
Kunal Shah:
Thanks so much for having us.
Ryan Flew:
Thanks for having us. Yeah, great to be here.
Bianca Boorer:
Yeah. So Kunal, tell us a bit about PVTL Point?
Kunal Shah:
I'm very happy to do so. So we are a London-based European opportunistic credit startup and launched in 2024. And really, the genesis of the firm was in recognition that we are very much in a new normal. So taking a step back, what we're seeing is potentially the most interesting investing environment for decades in European leveraged credit. And I think the opportunity set really comes about due to what's been a structural shift in the cost of funding. We combine that with a restructuring toolkit today that makes it as comparable to anything else in any other cycle. And that results in an almost unprecedented level of single name volatility.
So, you know, that comes after a very long period of abnormally low rates, which was the time at which most of the growth of our market really occurred. And so you have a huge opportunity set where, for the most part, balance sheets are being stress tested, such as chemicals today. And by the time you add up all the verticals of European leveraged credit, the opportunity set's well north of a trillion euro.
At the time we set up the firm, it felt as if you had this very obvious opportunity set, but comparatively few people talking about it. And I think the market at the time seemed more focused on duration, illiquid and private asset strategies. As a newer entrant in the space, we have the benefit of taking an unencumbered approach to really the full breadth of the opportunity set. And that is across sectors, tackling large cap structures, looking at small cap structures, which makes their approach very scalable. We're not sector specialists, but we're very happy to be talking about European chemicals today and clearly it's somewhat topical. In fact, our next thought piece at PVTL Point talks about this in some detail.
There's a lot that's been said around the impact of AI to the software industry and broader disruption. The reality is that this emerging technology can massively lower the barriers to entry for new entrants in the whole fund management space. So it's a very exciting time.
Bianca Boorer:
Okay. So I wanted to give a brief overview as to why we are looking at the chemicals sector. It's had a pretty rough ride with all the geopolitical tensions. Its initial struggles began when Russia invaded Ukraine in 2022, which led to the end of cheap Russian gas supply in Europe. The rise in energy costs has been coupled with weakening demand and rising competition from China. The next hit the sector was when US President Donald Trump started his trade war at the start of last year, imposing tariffs, and China has responded by redirecting low-cost imports towards Europe.
Now the energy prices have spiked again on the back of Trump's invasion of Iran at the end of February. The European benchmark gas prices have increased by more than 50% since the war began and around 90% since the start of the year. Even before the Iran crisis, gas prices in Europe were around three to four times higher than the US and two times higher than in China. If we look at the electricity costs, they're around two times as high versus the US and China.
So yeah, can you frame how you think the geopolitical landscape has affected the sector?
Kunal Shah:
Sure. I mean, look, in many respects, the pace at which significant events are occurring is somewhat reminiscent of 2008, obviously for very different reasons. Who's even talking about Greenland anymore? The market came into 2026 thinking tariffs were largely in the rearview mirror only to find out that there's still a lot of moving pieces here.
So for the most part, the market's temptation is to look through geopolitical risk, and that remains the default position largely because buy the dip has almost always worked in recent years. If I told you a year ago we'd have Liberation Day trade policy and that was going to be announced, you may have been tempted to go entirely short the market only to be disappointed by the rally that quickly settled in thereafter.
Geopolitics is multifaceted and there just isn't one impact on European chemicals. Some of these issuers have been around since almost the beginning of European leveraged credit markets. So if we look at INEOS Group and INEOS Quattro, between them they have about 20 billion euro of debt outstanding. And notwithstanding the fact that they've got a long history in the market, taking a look at these cap structures afresh can result in some pretty surprising conclusions. There is this combination of cyclical and structural issues. And even before we consider this new bout of stress that elevated energy costs can bring and create, we question the validity of conventional wisdom that for so long has supported valuations and ultimately leverage on these balance sheets.
And I think INEOS Group is a good example of how quickly sentiment can change. Pre the war in Iran, what has fundamentally changed with this business in the last six months? Six months ago they accessed primary market funding, and that's somewhat closed to them at the moment. Notwithstanding the current stress to trading levels, we don't think the market has really connected the dots between the magnitude of the problem and the solutions that are possible.
Bianca Boorer:
Yes, so you mentioned INEOS. So Jim Ratcliffe, the chairman and CEO, has been pretty vocal about the crisis in the sector. He warned EU decision makers in February at the Antwerp Summit that the current trading conditions for chemicals are unsurvivable. So no chemical business will survive with current energy costs, carbon tax, without tariff or duty protection. I mean, they did receive the £120 million grant from the UK in December to save the last ethylene plant in the UK.
But let's talk a bit more about the impact on the sector. According to a survey published in February by the Chemicals Industries Association, the UK has had 25 site closures in the past five years. Steve Elliott, the chief executive of the association, said there's been a near 40% fall in UK chemical production between 2021 and 2024. And he went on to say that the government's decision in 2019 to pursue net zero carbon emissions by 2050 is increasingly out of step with the UK's key competitors. So what are your views on the need for state support in the sector?
Ryan Flew:
Sure. So there's a fair bit to unpack there, so I guess bear with me. I think a useful place to start is to frame the numbers on the structural backdrop, and even if we just reference the numbers that INEOS themselves have put out. So over the past couple of years, the European chemicals sector has seen around 101 sites closed, which has translated to 25 million tons of chemical capacity disappearing. And if you look at the direct jobs of those plants and also the indirect jobs that support that infrastructure, it totals around 75,000 jobs impacted.
What's probably the more interesting or comparable statistic there is INEOS and Sir Jim Ratcliffe priced the replacement cost of those sites at 70 billion euros. So obviously, when you see state support in the millions and hundreds of millions, you could argue it's a bit of a drop in the ocean. It's obviously not quite an apples-to-apples comparison because some of the sites that have closed will be economically unviable, aged assets, etc. But it's a sort of helpful data point to frame it. And I think when we look at closures, the trajectory, from what we can see, if anything is accelerating.
So in December 2025, Roland Berger published a report that showed that the closures announced increased six-fold between 2022 and December '25 from 2.9 to 17.2 million tons per year. And again they doubled between '24 and '25, so it's clearly accelerating. I think the more interesting point as it relates to Europe versus, for instance, North America is Europe operates in what we'd sort of coin a hub-and-cluster dynamic. So European chemical plants don't typically operate in isolation; they're interlinked through shared feedstocks, utilities and off-take agreements. So what that means in practice is when one steam cracker is closed it can trigger a bit of a localized cascade, and effectively you've got each participant in that cascade watching their neighbour, and what could start as one cracker closing quickly ends up with an entire hub being unviable. And so I think that's the dynamic we're sort of seeing.
I guess if I just go back directly to the question on state support, probably the best way of framing this is going back to the Antwerp Declaration because that's obviously what's been most recently in the news. But this started in February '24 when 73 business leaders across 17 sectors presented a European industrial deal to the Commission President von der Leyen and the Belgian Prime Minister. There's definitely a lot of ambition there, but the first annual monitoring report was actually released last month and showed that for 83% of the KPIs that were monitored, their status is either the same or even deteriorated. So it's clearly still a problem and that hasn't had the desired effect.
The obvious points and blockings mentioned were what you would imagine. So high energy costs, slow infrastructure deployment and obviously a heavy regulatory burden in Europe. So they're the key barriers. I think, as you've mentioned earlier, that it would be unfair to say that the temperature hasn't risen recently, and it feels a bit more substantive than a lot of the rhetoric that we've seen in the past. So at the most recent February 26 summit, Macron was widely reported to have spoken for an hour without notes on this issue, so it's clearly a focus point for him. The UK has obviously provided the grant and guaranteed a loan for the Grangemouth plant, and France extended €300 million to the Lavera site. So those are INEOS-specific assets.
Jim Ratcliffe again wrote a piece in the FT a few days ago talking about energy security and how that needs to take precedent. I'm sure a lot of listeners read that article, but the high-level statistic he quoted was UK oil and gas production is forecast to collapse from 74 million tons in 2022 to just around 33 in 2030. So it's clearly quite a stark decline. I appreciate that's a long answer. The only thing I'd sort of end with is not all state support necessarily is the same, and just because an asset gets state support doesn't mean that the balance sheet of the issuer becomes more sustainable or indeed that creditors benefit. So in some instances state support just funds wages and it might not actually benefit creditors in a material way.
Bianca Boorer:
So we're following a few chemical companies here at 9fin, but yes, INEOS has garnered a lot of attention from restructuring advisors. The group recently secured €500 million in funding. Do you think it's out of the woods yet?
Ryan Flew:
I mean, look, the short answer is no. I think that funding package would be more powerful if we thought the issues facing INEOS were just cyclical, but we don't really think that's the case. I mean, if we just take INEOS Group and look at the OMP business, when North America's margins are running at four times what they're seeing in Europe, it's hard to argue that Europe isn't at a structural disadvantage. And I think that is pretty well signposted and most people appreciate that that's a function of feedstock economics and energy costs. It's just that Europe is structurally different and it remains so. We'll probably touch on Project One in a bit, but obviously that's looking to try and change that a bit, but it's somewhat of a stopgap.
When we look at INEOS today, the group from what we can see on an LTM basis is operating below what has previously been shown as a bottom-of-the-cycle sort of economics. So that kind of begs the obvious question to us that if you're already operating below the bottom of the cycle, should the whole validity of through-the-cycle valuation analysis even hold still? And I think if we set aside fluidity of macro variables, so severe oil shocks for instance, the near-term triggers across both INEOS Group and Quattro are quite clear to us. Let's start sort of almost in chronological order there. So Quattro's '27 maturities were well signposted as the most pressing. With that funding package that you've discussed, it's substantially addressed.
It's worth just reiterating the point that of that funding, €200 million is a shareholder commitment and a lot of people have seen the positives in that. So we sort of take that in conjunction with public comments that INEOS is focused on replacing debt as it comes due rather than seeking new funding for other purposes. And put that all in the hopper and kind of conclude that Quattro has a bit of runway. So then I guess before I move on to Group, I'd say that it has been noted that Quattro is using excess liquidity currently to buy back the '27s. It's doing that rather than capturing more of a discount in the longer-dated paper. So there's a bit of a distinction we see there between how both sets of creditors are being treated, and you can sort of read into that what you will.
But the next most significant issue sits at the group level. So INEOS Group has about €1.8 billion of debt coming due in '28. As is typically the case, we'd expect the issuer to start looking to address that when it comes current, which is sort of first half of 2027. What makes that particularly interesting is that's when Project One is also expected to start up. Now that's assuming it doesn't see any sort of further delays or cost overruns, to which it's had a little bit. But Project One has been pitched as a meaningful earnings catalyst for the group, and its completion or failure to complete on time will presumably be an important input into any refinancing conversation.
Bianca Boorer:
So INEOS, as well as other chemical producers that we follow like Arxada, have responded to the crisis by selling various assets within their companies. Do you think this is the main response that the chemical producers are taking?
Ryan Flew:
It's a hard one. I think on the INEOS asset sale, I'd say it's a bit more speculative at this point than outright confirmed by the company. I think if a third party was to come in and make a favorable price for some of these assets and that was to be used to pay down debt, I can see how creditors might see that in a positive light. I'd sort of caution it feels a little bit glass-half-full to me, or at least a glass-half-full viewpoint. And even if they were looking at asset sales, a lot of that speculation came before even the latest developments in Iran. So at the very least, that's got to impact valuations and the likelihood of a transaction closing.
I think it's somewhat related, I suppose, to looking at sales. But when we look at the risks that are actually facing more specifically Group here, when we review the public documentation across the bonds, there's actually very little in the way of protections for creditors to ward off an LME or what we're more often seeing as a multi-phase LME. So if the shareholders or an opportunistic creditor group decides to go down that path, there is not much that can be done right now. So to kind of put more meat on the bone, both structures lack protections against non-pro rata redemptions. Both have meaningful basket capacity for dropdowns, and there's no J.Crew-style blocker restricting which assets can be moved. So in simplistic terms, it'd be quite possible for a subset of creditors to receive materially more favorable treatment than others.
And just to bring that all into kind of the biggest risk factor we see, it relates to Project One. So this has been pitched as a European savior. It very much seems like this asset will sit at the bottom of the European cost curve, owing to that economic advantage of importing ethane over using naphtha like the rest of the European assets. And there is a genuine earnings uplift story if it comes through. There is the point to be made that INEOS doesn't really have a great track record, or comparable track record, in similarly sized greenfield projects. So some of those delays that we've seen, and maybe future ones, could be expected.
But I think the scenario that would create the greatest shock is if the shareholders decided to use available basket capacity to drop down the project. That could be disguised as a friendly move. They could say that there's a lot of capex costs here that we need to take out of the business, as has been seen previously, or it could just be explicitly used as a negotiating tactic, and we've seen that in other issuers in the market. I think the long and short is we see ample capacity in the documentation to do exactly that.
Kunal Shah:
And I think past behavior can often be a good indicator of future performance. And so, by our numbers, between 2014 and 2025 INEOS Group paid out €5.8 billion to shareholders and comparatively net debt grew by five and a half billion over the same time frame. Pretty meaningful numbers. As we talked about previously, the market more recently gained comfort around INEOS Quattro and more specifically the 200 million equity commitment that was discussed or disclosed. That 200 million could simply be dwarfed by elevated energy costs given more recent events. Asset sales sometimes fall short on valuation expectations, and if they do you shift to a plan B.
I think it's been framed, is Ratcliffe going to be a Coulson or a Drahi? And the reality is it could be neither, right? It is important to perhaps mention that the reference shareholder is 73 years old and perhaps has a different investment time horizon to when INEOS first came to the leveraged credit market about 20 years ago. And that matters when considering how long it might take for INEOS to grow back into its current capital structure, noting the earlier comment that your last 12 months' performance is through what was previously assumed to be bottom of cycle.
Bianca Boorer:
Mm hmm. So LME could be the answer, aside from asset sales. Are there any other chemical companies on your radar?
Ryan Flew:
Sure. I mean, if I sort of think through the names we've looked at over the recent months, one that jumps to mind in the space is Kronos. So this is a top five global titanium dioxide producer. It's a single monoproduct business and that product primarily is what makes white paint white. It's got just over 600 kilotons of capacity, pretty global customer base, 3,000 customers across 100 countries.
I think what's interesting here is if you look at the history of shareholder distributions, there's a lot of similarities with what Kunal's just voiced over at INEOS. So even the most recent quarter at Kronos, capacity utilization across the plants plummeted to 55%, which is considerably lower than it's been for a very long time. Despite that, they announced another quarterly dividend. I think that gets paid probably in a couple of days from today. And so it tells you a little bit of kind of how the shareholders view the asset and where their priorities lie.
And again, it's another situation where sentiment can quickly change. And we're seeing that with INEOS now, but Kronos tapped the market at 107 in September '25. Those bonds are down 30 points from then and trading around 77 cents. So when you get a combination of monoproduct businesses, cost disadvantages relative to larger, more diversified peers, and often no real vertical integration, granted that's not the case for INEOS, you can often see this gap present itself.
Bianca Boorer:
Okay. So where do you see investment opportunities within the chemicals sector?
Kunal Shah:
I think we've discussed a mixture of cyclical and structural issues here. And in the likes of INEOS and INEOS Quattro, we can see value falling pretty unevenly across the group because of those structural issues. And so when we combine that with flexibility in the docs, there's a serious possibility that value just doesn't fall to all creditors proportionately, i.e., a pro rata deal. And so notwithstanding the fact that these structures are trading at stressed levels, we just don't think you're getting compensated for the risk that you're assuming. Or put differently, it just may be too early to be diving into these structures.
The beauty of being sector agnostic means we can look for opportunities much more broadly. And that paradigm of single name volatility being elevated, we see that through structural bifurcation in the market. Yeah, that's great for a long/short credit strategy.
Bianca Boorer:
So if we broaden it beyond chemicals, what are the other sectors you think are being impacted by the geopolitical conflicts?
Kunal Shah:
I think what we're seeing now is an unprecedented level of disruption to energy markets, and that just has to have a substantial impact across the curve. I think you'll be hard-pressed to find a sector that's not impacted directly or indirectly in some capacity. It's also not occurring in isolation. I mean, for example, what impact does record hyperscaler bond issuance have in crowding out the higher quality end of the leveraged credit market?
As regards price action, all of this might be similar to the pandemic where the market, rightly so at the time, looked through events. We had the creation of newly accepted nomenclature such as EBITDA-C, which is of course EBITDA excluding the impact of COVID. The immediate impact from the geopolitical conflicts I think is inflationary. You need to take a view as to what costs can be absorbed by companies versus being passed through to their own customers. That in turn can have a huge impact on monetary policy, the steepness of yield curves, and ultimately the cost of capital. So I think we can't really limit the spillover to cyclicals. It's much, much more broadened than that.
Bianca Boorer:
So what are your predictions for the future of the European chemicals sector?
Ryan Flew:
I mean, look, as Kunal said at the start, we're far from chemicals sector specialists. And I'd sort of be wrong to say that there aren't going to be people out there that have much better views from a macro, top-down view on it. I think what I'd say is we keep looking at situations both in the chemicals sector and others through a slightly different lens with that sort of distressed debt approach to everything we look at. And what's often the case in throwing up interesting conclusions is we seem to be looking at situations where risks that we're identifying don't seem to be priced in. And sometimes the opposite, that opportunities exist that maybe haven't fully emerged.
So I think that's what keeps us excited about the opportunity set going forward. And a lot of the dynamics at play seem to be something that's going to last a prolonged period of time rather than a shock or a jolt. So I've slightly dodged the question, but that's what I'd say.
Bianca Boorer:
Anything to add, Kunal?
Kunal Shah:
No, I think it's pretty comprehensive.
Bianca Boorer:
Great, well, that's all we've got time for. So thank you for your podcast today.
Kunal Shah/Ryan Flew:
Thanks so much for having us, yeah.
Bianca Boorer:
And thank you to our listeners. If you want to share feedback on this episode, please reach out to us at podcast@9fin.com, and we'll see you next time.