January 21, 2009 / 8:58 PM / in 9 years

UPDATE 2-Liquidity fears, outlook hit Nova Chemicals shares

(Adds Nova response, updates stock price. In U.S. dollars unless noted)

By Scott Haggett and Jeffrey Jones

CALGARY, Alberta, Jan 21 (Reuters) - Nova Chemicals Corp NCX.TO shares skidded by more than a quarter on Wednesday, after a report raised liquidity concerns about Canada’s largest maker of raw plastics as it copes with the weak economy.

The Globe and Mail newspaper said Nova has C$1.1 billion in debt coming due over the next two years and has gone to its bankers to seek better terms.

Nova said its cash resources are adequate to meet its needs, but the shares sank C$1.60, or 26 percent, to C$4.45 on the Toronto Stock Exchange. Volume was 2.3 million shares, about four times the three-month average.

Prior to Wednesday’s drop, the stock had fallen 78 percent in 12 months.

The company’s bonds also fell. Bonds that are due to be repaid in April plunged on jitters over Nova’s ability to repay the $250 million in debt. The 7.4 percent bonds due April 1 dropped 18 cents on the dollar to 62 cents, yielding 338 percent, according to MarketAxess.

“Ethylene market conditions have deteriorated substantially,” Gimme Credit analyst Carl Blake said. “Nova has $250 million of bonds that come due in April. There are concerns that they will not be able to refinance the debt.”

Nova issued a statement after the market closed, saying it has $575 million on hand and unrestricted access to its credit facilities. The company’s liquidity target range is $450 million to $650 million, spokesman Greg Wilkinson said.

It said it the $250 million of bonds are attractive at the current price, but in keeping with its insider trading policy it will not consider buying any until it releases its fourth-quarter results next week.

“We’re confident we’ll maintain our solid liquidity. Our liquidity is sufficient to manage our April bond maturity and we continue to make good progress on the financing front,” Wilkinson said.

Analysts say investors in the chemicals sector are skittish after the U.S operations of chemical makers LyondellBasell and Tronox Inc filed for bankruptcy protection earlier this month.

Meanwhile, Saudi Basic Industries Corp, another major chemicals player, said on Wednesday its fourth-quarter profit tumbled more than 95 percent. SABIC 2010.SE said it was cutting output at some plants and chopping 1,300 jobs to deal with the downturn in demand for plastics.

HSBC analyst Hassan Ahmed said Nova’s sudden stock drop shows investors are fearful, given conditions in the sector.

“The liquidity side is less of a concern,” said Ahmed. “The concern is that the main differentiating element that Nova has is the Alberta (cost) advantage. With the price of energy falling as much as it has all of a sudden that advantage has been narrowing and market conditions for their products are looking crappy.”

Nova says its plants in the western Canadian province of Alberta give it lower ethane feedstock costs, which it calls its Alberta Advantage.

Wilkinson said demand for Nova’s plastics, many of which are used to make packaging and consumer staples, was weak in October and November, but polyethylene volumes improved to the point where it was “the best December we ever had.”

Nova reports its fourth-quarter earnings on Jan. 29. The average analyst estimate is for a net loss $2.41 a share, against a year earlier profit of $1.12 a share.

$1=$1.26 Canadian Additional reporting by Karen Brettell and Euan Rocha; editing by Rob Wilson

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