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Financing analysis

LANXESS started fiscal 2012 with a very sound financial and liquidity position.

Our financial portfolio improved over the course of 2012, especially due to capital market financings and the refinancing of our syndicated credit facility in the amount of €1.25 billion. We funded our organic growth with the increased earnings from business operations and financed additional growth using existing liquidity and credit lines. The issuance of a three-year Chinese offshore renminbi bond with a volume of CNH 500 million (equivalent to €60 million) and the first-ever issuance of two private placements with a volume of €100 million each have contributed to safeguarding the long-term liquidity. The private placements were made at the beginning of April 2012 under our debt issuance program and have terms of 10 and 15 years and coupons of 3.5% and 3.95%, respectively. In addition, in November 2012 we took advantage of the very positive market climate to issue our first-ever ten-year €500 million bond with a coupon of 2.625%. This helped us strengthen our liquidity position at favorable terms and created financial reserves for redemption of the €500 million bond that matures in 2014. These financing measures have improved the maturity profile of our financial liabilities. In the period under review, the remaining €402 million from the Eurobond issued in 2005 was repaid from existing liquidity. Accordingly, the cash and cash equivalents and near-cash assets items in the statement of financial position as of December 31, 2012 were €208 million and €61 million above prior-year levels at €386 million and €411 million, respectively.

LANXESS launched a €2.5 billion debt issuance program in March 2009. Using this documentation base, aligned with the prevailing market conditions, bonds can be placed on the capital market very flexibly with respect to timing and volume. Each of the aforementioned bond issuances and private placements was based on this documentation. As of December 31, 2012, just under €2.0 billion of the €2.5 billion financing facility had been utilized to issue bonds and private placements.

In December 2012, we took early action to refinance our syndicated credit facility that is due to mature in 2014. The new syndicated credit facility, which amounts to €1.25 billion, runs until February 2018 and contains two one-year extension options. This proactive refinancing has enabled us to safeguard LANXESS’s liquidity for the long term. The reduction in the amount of the facility from €1.408 billion to €1.25 billion is due to the higher weighting of capital market financing, while simultaneously preserving our strong liquidity position.

In total, we successfully obtained new financing of around €2.0 billion in 2012 through the issuance of the aforementioned bonds and private placements and through refinancing the syndicated credit facility. These measures will contribute sustainably to improving our financing costs and to optimizing our maturity profile. Moreover, they are important building blocks in the financing of our company’s growth.

Current financial liabilities decreased from €633 million to €167 million, primarily due to the repayment of the remaining €402 million bond that matured in 2012.

We made only limited use of finance leases, which are reported as financial liabilities in the statement of financial position. As of December 31, 2012, the financial liabilities from finance leases amounted to €78 million, against €84 million in the previous year. The LANXESS Group uses operating leases mainly for operational reasons and not as a means of financing. Minimum future payments relating to operating leases totaled €496 million, against €418 million the previous year. The increase over the prior year is principally due to the construction of the new production facility in Singapore and to our new Group headquarters in Cologne.

As of December 31, 2012, LANXESS had no material financing items not reported in the statement of financial position in the form of factoring, asset-backed structures or project financing, for example.

LANXESS’s total financial liabilities, i.e. net of accrued interest, climbed from €2,043 million in 2011 to €2,280 million at December 31, 2012. Net financial liabilities – the total financial liabilities net of cash and near-cash assets – decreased by €32 million, from €1,515 million to €1,483 million.

Of the total financial liabilities, some 99% bear a fixed interest rate over the term of the financing, which is comparable to the previous year. Interest rate changes therefore do not have a material effect on LANXESS’s financial condition considering the current financing structure. The proportion of loans and bonds denominated in euros averaged 97% in the reporting year, which was level with the prior year. Thanks to the financing measures taken in 2012, we succeeded in improving the weighted average interest rate for our financial liabilities. It stood at 4.8% at year end 2012, against 5.3% the previous year.

The following overview shows LANXESS’s financing structure as of December 31, 2012 in detail, including its principal liquidity reserves.

Financing Structure
         
Instrument Amount € million Term Interest rate % Financial covenant1)
         
Eurobond 2009/2014 (€500 million) 498  April 2014 7.750 no
Eurobond 2009/2016 (€200 million) 199 September 2016 5.500 no
Eurobond 2011/2018 (€500 million) 497 May 2018 4.125 no
Eurobond 2012/2022 (€500 million) 493 November 2022 2.625 no
Private placement 2012/2022
(€100 million)
100 April 2022 3.500 no
Private placement 2012/2027
(€100 million)
99 April 2027 3.950 no
CNH bond 2012/2015 (CNH 500 million) 60 February 2015 3.950 no
Investment loan 67  December 2017   no
Development bank loan 120 September 2018   no
Other loans 69 n/a   no
Finance lease 78 n/a   no
Total financial liabilities 2,280      
Cash 386 ≤ 3 months    
Near-cash assets 411 ≤ 3 months    
Total liquidity 797      
Net financial liabilities 1,483      
1) Ratio of net financial liabilities to EBITDA pre exceptionals

Due to extensive financing measures taken in past fiscal years, we have continually improved the maturity structure of our financial liabilities. At the time this combined management report was finalized, LANXESS therefore had no need for substantial refinancing. The other loans related mainly to the use of credit facilities by subsidiaries in Brazil, China, India and Argentina, some of which mature in 2013. Because these facilities are regularly extended – annually, for example – we do not expect any need for substantial refinancing.

Maturity Profile of LANXESS Financial Liabilities as of Dec. 31, 2012
Chart: Maturity Profile of LANXESS Financial Liabilities as of Dec. 31, 2012

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