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Westlake to place ethylene assets in limited partnership

10:03 AM MDT | April 29, 2014 | Robert Westervelt

Westlake Chemical has announced plans to carve out its ethylene assets into a tax-advantaged, separately traded limited partnership, according to regulatory filings. 

The company, Westlake Chemical Partners LP, will own two ethylene facilities at Westlake’s Lake Charles, LA, site, with combined capacity of 2.7 billion lbs/year; one ethylene unit with capacity of 630 million lbs/year, at Calvert City, KY; and a 200-mile ethylene pipeline that runs from Mont Belvieu, TX, to Westlake's polyethylene units at Longview, TX. The partnership will enter into a 12-year ethylene sales agreement, under which Westlake will agree to purchase 95% of the partnership's ethylene production on a cost-plus basis at a fixed margin of 10 cts/lb. Assets included in the partnership had pro forma 2013 revenue of $1.2 billion and pro forma Ebitda of $367.1 million, according to regulatory filings. Westlake shares soared 13% on the news, trading at $72.81/share at 12 pm ET.

Westlake would still hold a substantial majority interest in the partnership, operating as general partner and owning 90% of the limited partner interests after the stock offering. The timing, number of units, and price range of the offering have not been determined. Westlake Chemical Partners intends to apply for a listing of the common units on the New York Stock Exchange under the symbol WLKP.

The partnership says it plans to pursue growth opportunities, including capacity expansions. Westlake has announced plans to add 250 million lbs/year of ethylene at Lake Charles in late 2015 or early 2016. "We believe Westlake is incentivized to offer us the opportunity to purchase additional assets that it owns, including additional interests in [the partnership], although it is under no obligation to do so," Westlake Chemical Partners said in an S-1 filing today. "We may also pursue organic growth opportunities [for the partnership] as well as acquisitions from third parties, which could be effected jointly with Westlake." 

An IRS ruling in 2012 opened the path to olefins production assets in publicly traded partnerships. One advantage to partnership structures is tax treatment of earnings. Income is not taxed at the corporate level with income passed through to shareholders in the partnership. Westlake says it expects Westlake Chemical Partners to be treated as a partnership for US federal income tax purposes and generally will not be liable for entity-level federal income taxes.

Barclays Capital and UBS Securities will act as the joint book-running managers for the proposed offering.

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