British chemicals empire Ineos feels the squeeze

0:02Good morning from the Financial Times. Today is Friday, November 14th, and this is your FT News briefing. Oracle stock has been hammered lately, and a European chemicals heavyweight is buckling under the pressure of the industry. Plus, we take a look at the little town of Bethlehem, Pennsylvania. Growing up, I thought Bethlehem was just like your average small town. Recently, though, I've realized we're really in the center of a lot of things. I'm Mark Filippino, and here's the news you need to start your day.

0:40Tech stocks fell on Wall Street again yesterday. It's been a rough ride for them over the past month, and Oracle has been hit particularly hard. Its shares are down almost 30 % over the past month. That's close to twice the fall of Meta, which is the next worst-performing big cloud computing company. Investors are so skittish about Oracle because of its massive investment into artificial intelligence chips and data centers. that's largely been because of deals to supply computing capacity to OpenAI. Oracle borrowed a lot of money to fund those commitments, and investors have also sold off its corporate bonds in the past month.

1:18Oracle executives believe the ends will justify the means, though. It sees its OpenAI deals generating$300 billion in revenue by 2032.

1:33A heavily indebted chemicals empire is coming under more and more financial pressure. Ineos is one of Britain's largest privately owned companies, and it's now being hit by concerns over Europe's flailing chemical sector. Credit analysts say they're worried about the future of Ineos. You're going to tell us more as the FT's Ewan Healy. Hi, Ewan. Hello. So first off, just give me a little bit of background about Ineos as a company. So Ineos is one of Europe's largest chemical companies. And it was founded by Jim Ratcliffe, the owner of Manchester United, and has made him one of, I think at one point, Britain's richest person.

2:14But it's a sprawling empire spanning sort of 27 countries producing chemicals and products that go into plastics. And what kind of pressure is INEOS under now? The wider pressures that have been affecting European's chemical sector have, like the rest of its competitors, have weighed on INEOS's earnings. But particular to INEOS, it puts it under even more pressure because of its large, over 11 billion euro debt pile that it needs to service with interest payments and at one point pay off or refinance. This poor earnings profile, or worsening earnings profile, has led rating agencies like Fitch and credit analysts from banks like JP Morgan to downgrade their credit worthiness that they place on the company.

2:57As a result of these downgrades and the pressures that credit investors can see on its balance sheet and its earnings have led to some of them who are maybe more conservative investors selling out of Ineos' debt, which has made a number of its bonds and loans fall in value. That wipes hundreds of millions of euros off the value of its bonds and loans in the credit market. Now, you mentioned that part of the reason that INEOS is struggling so much is because of the chemical sector. Why is that struggling so much? Europe's chemical sector is coming under a few pressures. I mean, first of all, there's a huge influx of cheaper chemicals and materials coming from Asia, which has just been able to undercut most of Europe's companies.

3:42And then on top of that, Europe's particularly high energy costs add to that, meaning that their costs are much higher than their competitors from around the world, which drives down demand and it means their earnings decrease. And for a company like Ineos with huge financing costs, that presents a particular problem. Now, Ewan, Radcliffe just a month ago called on European politicians to make an 11th hour intervention to save the chemical industry. There's, in my view, not a great deal of time left before we see a catastrophic decline in the chemical industry in Europe. Could that have any impact or are there other things that you're looking out for for INEOS right now?

4:23I mean, it's very tricky. Jim Ratcliffe has talked a lot over the last year, used words like Europe's industry could become extinct and that time is running out to save it. Whether his pressures on government will have any impact is still to be seen. And creditors and debt investors in INEOS are keeping a keen eye on this. One thing that a lot of people in the market have been saying is that Europe cannot afford for its entire chemical sector to become extinct. And the question on their minds is if there is a survivor or a few, if INEOS is best placed to be one of those survivors. So what is the path forward for INEOS then?

4:59So over the last year, a number of large issuers of junk debt in Europe have been forced to restructure, including Ireland's Paul Colson and his Arda Glass empire, and then Patrick Drahi, who has his Altice Telecoms empire. The forced restructurings of these conglomerates has left Ratcliffe, as some people on the market, is called the new king of Europe's junk market. But there is speculation, as interest rates are now higher and the chemical sector is coming under pressure, that Ratcliffe might be forced to do his own Drahi-style restructuring deal. Ewan Healy is a corporate debt reporter for the FT.

5:36Thanks, Ewan. Great. Thank you very much.

5:44You may have noticed it's been a bit quiet around here on a topic we absolutely love to cover, economic data out of the U.S. In this part of the show, I'd normally be telling you about the latest read on U.S. inflation. October's numbers were due out yesterday, but they were not released. That's because the government shutdown prevented agencies like the Bureau of Labor Statistics from doing its job. But the question is, what does that mean for our longer-term understanding about the health of the U.S. economy? FT economics correspondent Miles McCormick is digging into that story as we speak. He'll be talking to my colleague Victoria Craig on Monday's show, so be sure to tune in for that one.

6:28The FT is diving deep on some of the U.S.'s biggest economic and political issues, and we're doing it in a new series that focuses on one city, Bethlehem, Pennsylvania. Over the next several years, our reporters will be covering Bethlehem, and Sonia Hudson, whose voice you may recognize from this program, will be hosting the podcast about it. She joins me now. Hey, Sonia. Hey, Mark. So, Sonia, tell me the basics about the series. Yeah, so we're launching a special podcast series on the Swamp Notes feed, and we're going to dive into things like Donald Trump's economy, immigration, political divisions, and all of the hot-button issues that you could think of in the sphere of American politics right now.

7:08And we're going to do it all through the lens of one city. So, Sonia, can I ask why this city in particular? Yeah. Well, first of all, Bethlehem is in the swingiest of all swing states, Pennsylvania. And then Bethlehem itself is a former steel town. It's full of new immigrants. It has a really big Hispanic population. So it really encapsulates so many stories that American politicians are telling about the country and who it's for, you know, things like declining blue-collar jobs, tariffs, deportation, and just really hotly contested politics. And these are all stories that I think Bethlehem tells really well.

7:46Now, if I recall correctly, the first episode of this special series is actually already out. Yeah, you can listen to the first episode right now in the Swamp Notes podcast feed. We're going to release an episode every month or so. And the first one is about an immigration raid that happened in Bethlehem earlier this year. It was, you know, relatively small compared to some of the other immigration enforcement actions that we saw across the country. I'm thinking specifically about L.A. where there were those huge protests. But the response in Bethlehem, which is 30 % Hispanic, really shows the intense division over how to treat people who work and contribute to society, but also came to the country illegally.

8:30Is there anything else that you want to share about the show? Yeah, I mean, I will say something that I'm really excited about is how these episodes sound. You know, we're going to take you along with us to Bethlehem into shops and homes and schools, and you're really going to hear what this town is like. So I want to play you a few clips, actually, from some of the people that I spoke with. Growing up, I thought Bethlehem was just like your average small town. Recently, though, I realized we're really in the center of a lot of things. I know that my citizenship and my status is just a legal decision and that it can be taken away from me.

9:06Every man, like young man, has someone in their life who has more of a blue collar job. And I think that the perceived threat is that illegal immigrants are going to take blue-collar jobs. And like you can hear, these are really personal stories that we're only really able to capture in person when you're face-to-face talking with someone. I'm really looking forward to listening to this. It's the FT's Sonia Hudson. Thanks so much, Sonia. Thanks, Mark. And just a reminder that if you want to listen to The Bethlehem Project, you can catch that on the Swamp Notes feed. We've got a link to that in the show notes.

9:46The stock market these days is getting too unhinged, even for Michael Burry. You might know his name from the blockbuster film The Big Short. He's an investor who was made famous by his big bet against the U.S. housing market before the 2008 financial crisis. He made oodles of money from that bet. Now he's closing his hedge fund, Scion Asset Management. And he's warning that market valuations are out of sync with fundamentals. In a letter he sent to investors that was seen by the FT, Burry said he would liquidate funds and return capital by the end of the year. You can read more on all these stories for free when you click the links in our show notes.

10:22This has been your daily FT News Briefing. Check back next week for the latest business news. The FT News Briefing was produced this week by Henry Larson, Victoria Craig, Sonia Hudson, Lulu Smith, Nisha Patel, and me, Mark Filippino. Our show is mixed by Alex Higgins, Kent Millitzer, and Kelly Gary. we had help this week from Peter Barber David Da Silva, Michael Lello and Gavin Coleman our acting co-head of audio is Topher Forges and our theme song is by Metaphor Music