O-I expected to resume sale of Australia and NZ operations

­O-I has been affected by falling demand for beer bottles in the past few quarters.

Further evidence is emerging that Owens-Illinois is likely to resume attempts to sell its Australia and New Zealand operations when the COVID-19 disruptions pass.

The Wall Street Journal has reported in recent days that the global glassmaker has been forced to cut back production because of the COVID-19 pandemic, in what is an indicator it is likely to be eager to secure additional cash.

Goldman Sachs was hired by O-I, as it is known, to sell the Australian and New Zealand operations late last year, and while it came close to offloading the operations to Visy Industries, a deal was never finalised. The division was expected to sell for between $500m and $1bn, with Pacific Equity Partners the underbidder.

While the sale was on hold, O-I was said to have carried out a refinancing, taking on an additional $5bn worth of debt, creating a buffer to fend off impacts from the coronavirus.

But falling sales due to COVID-19 could scare away suitors. According to WSJ reports, liquidity was adequate as balance sheet cash and undrawn availability on committed lines of credit was $1.7bn at the end of the first quarter.

Not long ago, O-I completed an upsized $US700m offering of senior notes due 2027 to help manage near-term maturities.

But the company indicated that volumes could be down between 5 per cent and 10 per cent this year because of temporary furnace shutdowns in certain locations, including Mexico and South America as well as Europe.

In the last few quarters, ­O-I has been affected by falling demand for beer bottles, particularly in its largest North America segment and has responded by shutting down some capacity to balance operations. While the shift to other packaging (60 per cent of beer is now packaged in non-glass containers) will continue to create headwinds, before the COVID-19 disruption in mid-March O-I was seeing a modest uptick in volumes.

First-quarter performance was lacklustre, however, with a 5 per cent decline in revenue, about 1.7 per cent of which was attributed to the pandemic.

Segment profit decreased 18 per cent to $US169m in the quarter versus $US200m in the year-earlier period, because of currency headwinds and one-time items benefiting the previous year.

ADDITIONAL REPORTING:
The Wall Street Journal