Tasnee better off scrapping Tronox-Cristal deal: Al Rajhi Capital

National Industrialization Co. (Tasnee) stands to benefit if the deal between its subsidiary National Titanium Dioxide Ltd. (Cristal) and NYSE-listed Tronox Ltd. does not go through, Al Rajhi Capital said in a recent report.

Tronox is looking to acquire the titanium dioxide (TiO2) business of Cristal, which is 79 percent owned by Tasnee, for SAR 6.27 billion in cash and Class A ordinary shares representing 24 percent ownership in pro forma Tronox.

However, the proposed deal has faced regulatory challenges in the US and EU, amid concerns the merger could reduce competition and inflate prices.

In March, Tasnee announced that the date to complete the deal has been extended to June 30 from May 21.

“Even if it were to go through, the new addendum agreement – the option to buy 90 percent of Slagger is a positive for Tasnee as we were of the view that there is no visibility of profits for the Slagger,” Al Rajhi Capita said.

“Tasnee can offload the debt associated with the Slagger to Tronox and can retain 10 percent stake,” it added.

The Tadawul-listed firm can streamline its operations further, by disposing off other smaller loss making businesses and utilize the cash to pay off part of SAR15.6 billion gross debt.

The report added that Tasnee can benefit from rising TiO2 prices.

Al Rajhi Capital said in the scenario of current level of TiO2 prices and without the deal, it is raising Tasnee’s target price to SAR 23 per share, with an “overweight” rating,

“At the current level of EBITDA, the company can easily pay off the debt within five years and depending on the optimal debt/asset ratio, the company can even decide on dividends in 1-2 years. As of now, we do not expect any dividends,” the report said.