Risks Related to our Liquidity and Capital Resources
As a result of a history of operating losses and negative cash flows, together with other factors, including the effect on our ability to borrow and events of default under our credit agreements as a result of the failure to deliver an unqualified opinion (including not containing an explanatory paragraph regarding going concern) with respect to our 2022 audited financial statements, we may not have sufficient liquidity to sustain operations and to continue as a going concern.
As described further under Item 5. “Operating and Financial Review and Prospects -Liquidity and Capital Resources-Liquidity and Going Concern”, which disclosure is incorporated into this risk factor, several conditions and events, including operating losses and negative cash flows, raise substantial doubt about our ability to continue as a going concern and accordingly, the Independent Auditors Report in our 2022 audited financial statements includes an explanatory paragraph regarding going concern.
As of December 31, 2022, we had $1,040 million in debt outstanding comprised of $353 million under our Term Loan Facility due 2024, $219 million under our 9.5% Senior Secured Notes due 2025, $373 million under our 5.75% Senior Unsecured Notes due 2025, $80 million due under our ABL facility and $15 million of other debt primarily consisting of insurance premium financing. Our ABL facility had $162 million of available borrowing capacity at December 31, 2022. The available borrowing capacity has decreased to approximately $37 million as of February 17, 2023 and we are unable to utilize the majority of this available liquidity due to a cash dominion minimum availability requirement if availability falls below 10% of the aggregate principal amount of our facility. Furthermore, failure to deliver an unqualified opinion (including not containing an explanatory paragraph regarding going concern) to the lenders under our Term Loan Facility and ABL facility by March 31, 2023 will result in a “default” under the terms of the agreements governing the Term Loan Facility and the ABL facility. A failure to timely cure such defaults, which cure may be required as early as April 30, 2023, will constitute an “event of default” under the terms of the agreements governing the Term Loan Facility and the ABL facility. Upon an event of default, the lenders under our Term Loan Facility and ABL facility can accelerate the repayment of the outstanding borrowings under our facilities and exercise other rights and remedies that they have under applicable laws. In addition, an acceleration of
indebtedness in an amount greater than $50 million under our Term Loan Facility or ABL facility that remains uncured for 30 days will constitute an event of default under our 9.5% Senior Secured Notes due 2025 and our 5.75% Senior Unsecured Notes due 2025. We may seek a waiver of the requirement to deliver an unqualified opinion (including not containing an explanatory paragraph regarding going concern) from the lenders under the Term Loan Facility and the ABL facility. However, we can provide no assurance that, if sought, a waiver of this requirement will be granted. As a result of the foregoing likely events of default, all of our debt has been classified as current on our consolidated balance sheet for the year ended December 31, 2022.
If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all, which could have a material adverse effect on our business, results of operations and financial condition and could impact our ability to continue as a going concern. See “Risk Factors -We may not be able to raise additional capital in the future on favorable terms or at all, which could materially adversely affect our financial condition and results of operations including our inability to continue as a going concern.” Even if our creditors do not exercise all rights and remedies available to them in an event of default, such an event of default could cause a significant decline in the value of our ordinary shares. The inclusion of the explanatory language around going concern in our 2022 consolidated financial statements, any event of default under the agreements governing our indebtedness and any strategic transactions that we undertake to improve our liquidity position could also have an adverse impact on our reputation and relationship with third parties with whom we do business, including our customers, vendors and employees.
If we are not able to timely, successfully or efficiently implement the strategies that we are pursuing to improve our operating performance and financial position, obtain alternative sources of capital or otherwise meet our liquidity needs, we may need to voluntarily seek protection under applicable bankruptcy or insolvency laws, including Chapter 11 of the U.S. Bankruptcy Code. Holders of our ordinary shares may not receive any value or payments in a restructuring or similar scenario.
We may not be able to raise additional capital in the future on favorable terms or at all, which could materially adversely affect our financial condition and results of operations. including our inability to continue as a going concern.
Our TiO2 business is capital intensive, and our success depends to a significant degree on our ability to develop and market innovative products and to maintain and update our facilities and process technology.
Our capital requirements will depend on many factors, including acceptance of, and demand for, our products, the extent to which we invest in new technology and research and development projects, and the status and timing of these developments. As noted elsewhere in this Form 20-F, we are conducting a strategic review of our business and plan to strengthen our liquidity position and engage shareholders and debtholders with respect to our capital structure. In connection with this strategic review, we are exploring options to refinance our existing indebtedness, including restructuring our existing capital and bringing on new sources of capital. There is no assurance, however, that such efforts will result in a refinancing or restructuring on acceptable terms, if at all. Obtaining such financing is more challenging under current market conditions. Disruptions in the capital and credit markets, including the increases in interest rates by the U.S. Federal Reserve to counteract inflation, as well as other factors, have caused some lenders to increase interest rates, enact tighter lending standards which we may not satisfy as a result of our debt level or otherwise, refuse to refinance existing debt at maturity on favorable terms, or at all, and in certain instances have reduced or ceased to provide funding to borrowers.
The credit rating agencies periodically review our ratings, considering factors such as our capital structure, earnings profile, and the condition of our industry and the credit markets generally. Credit ratings are subject to revision or withdrawal at any time by the assigning rating organization. We expect that the credit agencies will further reduce our credit ratings following the issuance of an audit opinion with an explanatory paragraph regarding going concern with respect to our 2022 audited financial statements. We expect that a drop in our credit ratings, such as that which occurred during the first quarter of 2023 and which we expect to occur again in the near future, will adversely impact our business, cash flows, results of operations, financial condition, liquidity and our ability to obtain additional financing or to refinance our debt.
In addition, alternative sources of capital, if available at all, could involve the issuance of debt or equity on unfavorable terms or that would result in significant dilution. For example, we may, at any time and from time to time, seek to purchase, repay, exchange or otherwise retire our outstanding debt in open market transactions, privately negotiated transactions, tender offers, exchange offers, pursuant to the terms of our outstanding debt, by restructuring our existing debt or otherwise. We may incur additional financing to fund such transactions or otherwise, which could include substantial additional debt (including secured debt) or equity or equity-linked financing. Although the terms of the agreements governing existing debt restrict our ability to incur additional debt (including secured debt), such restrictions are subject to several exceptions and qualifications and such restrictions and qualifications may be waived or amended, and debt (including secured debt) incurred in
compliance with such restrictions and qualifications (as they may be waived or amended) may be substantial. The number of our ordinary shares or securities convertible into our ordinary shares that may be issued in connection with such transactions may be material and our shareholders could suffer significant dilution and economic loss, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our current equity securities. Such transactions, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements and cash position, contractual restrictions, trading prices of debt from time to time and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. In addition, we may choose or need to obtain alternative sources of capital, otherwise meet our liquidity needs and/or restructure our existing indebtedness through the protections available under applicable bankruptcy or insolvency laws, including Chapter 11 of the U.S. Bankruptcy Code. Holders of our ordinary shares may not receive any value or payments in a restructuring or similar scenario.
If we are unable to generate sufficient cash flow from our operations, our business, financial condition and results of operations may be materially and adversely affected.
We are responsible for obtaining and maintaining sufficient working capital, funding our capital expenditure requirements and servicing our own debt. There is substantial doubt about our ability to continue as a going concern and our ability to generate sufficient funds from operations to service our debt and meet our business needs, such as funding working capital, pension obligations, capital expenditures, restructuring activities or the transfer of our existing manufacturing operations to other parts of our business. Our ability to generate cash is subject in part to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash and repay or refinance our debt as it becomes due, we may be forced to take disadvantageous actions, including entering into unfavorable financing arrangements, selling profitable parts of our business, which may disrupt long-term strategic plans, or initiate legal restructuring proceedings.
Our customers, prospective customers, suppliers or other companies with whom we conduct business may require modifications in our arrangements which could impact our liquidity.
Some of our customers, prospective customers, suppliers or other companies with whom we conduct business may require assurances as a condition to do business with them. These assurances may be in the form of letters of credit, financial guarantees, reduction in payment terms, or prepayments of goods or services, all of which will have a direct impact on our liquidity. Our inability to provide such assurances may result in the loss of customers or suppliers and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Risks Related to our Manufacturing Operations and Suppliers
Significant price increases in raw materials, energy or shipping, or interruptions in supply, have and may continue to result in increased costs that we may be unable to pass on to our customers, which could reduce our profitability.
We incur substantial costs for raw materials, energy and shipping. These costs are subject to worldwide supply and demand as well as other factors beyond our control and we have experienced significant increases in all of these costs in recent years. Volatility in the cost for raw materials and energy have significantly affected our operating results. We purchase a substantial portion of our raw materials from third-party suppliers and the cost of these raw materials represents a substantial portion of our costs of goods sold. The prices of the raw materials that we purchase from third parties are cyclical and volatile. Our supply agreements with our TiO2 feedstock suppliers provide us limited protection against price volatility as they mostly provide for market-based pricing. Contracts have historically been multi-year volume based with negotiated or formula driven short interval pricing and we have seen the terms of these contracts become less favorable with certain suppliers in response to the volatility in the post-COVID environment. Furthermore, we anticipate that substantial doubt about our ability to continue as a going concern will further impact these contracts and our relationships with these suppliers. To the extent we do not have fixed price contracts with respect to specific raw materials, we have no control over the costs of raw materials and such costs may fluctuate widely for a variety of reasons, including changes in availability, major capacity additions or reductions, or significant facility operating problems. While we attempt to match cost increases with corresponding product price increases, we are not always able to raise product prices immediately or at all. Moreover, the outcome of these efforts is largely determined by existing competitive and economic conditions. Timing differences between raw material prices, which may change daily, and contract product prices, which in many cases are negotiated only monthly or less often, also have had and may continue to have a negative effect on our cash flow. Any raw materials or energy cost increase that we are not able to pass on to our customers could have a material adverse effect on our business, results of operations, financial condition and liquidity.
There are several raw materials for which there are only a limited number of suppliers or a single supplier. For example, certain types of titanium-containing feedstocks suitable for use in our TiO2 facilities are available from a limited number of suppliers around the world. To mitigate potential supply constraints, we enter into supply agreements with particular suppliers, evaluate alternative sources of supply and evaluate alternative technologies to avoid reliance on limited or sole-source suppliers. Where supply relationships are concentrated, particular attention is paid by the parties to ensure strategic intentions are aligned to facilitate long term planning. If certain of our suppliers are unable to meet their obligations under present supply agreements, we may be forced to pay higher prices to obtain the necessary raw materials from other sources and we may not be able to increase prices for our finished products to recoup the higher raw materials costs. Any interruption in the supply of raw materials could increase our costs or decrease our revenues, which could reduce our cash flow and have a material adverse effect on our financial statements, results of operations and liquidity.
The number of sources for and availability of certain raw materials is also specific to the particular geographical region in which a facility is located. Political and economic instability in the countries from which we purchase our raw material supplies could adversely affect their availability. In addition, if raw materials become unavailable within a geographic area from which they are now sourced, then we may not be able to obtain suitable or cost-effective substitutes. We may also experience higher operating costs such as energy costs, which could affect our profitability. For example, we are currently experiencing the impact of a substantial increase in energy costs in Europe. We may not always be able to increase our selling prices to offset the impact of any higher productions costs or reduced production levels, which could reduce our earnings and decrease our liquidity.
Our manufacturing operations involve risks that may increase our operating costs, which could reduce our profitability.
Our operations are subject to hazards inherent in the manufacturing and marketing of chemical and other products. These hazards include chemical spills, pipeline leaks and ruptures, storage tank leaks, discharges or releases of toxic or hazardous substances or gases and other hazards incident to the manufacturing, processing, handling, transportation and storage of dangerous chemicals. We are also potentially subject to other hazards, including natural disasters and severe weather; explosions and fires; transportation problems, including interruptions, spills and leaks; mechanical failures; unscheduled downtimes; labor difficulties; remediation complications; and other risks. In addition, some equipment and operations at our facilities are owned or controlled by third parties who may not be fully integrated into our safety programs and over whom we are able to exercise only limited control. Many potential hazards can cause bodily injury or loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties and liabilities. Furthermore, we are subject to present and future claims with respect to workplace exposure to hazards, exposure of contractors on our premises as well as other persons located nearby, workers’ compensation and other matters.
In response to the COVID-19 pandemic and the ensuing global economic impact, we implemented a number of cost saving measures, including reducing our capital expenditures. We have continued to operate a reduced capital expenditure budget in response to cost pressures and financial stress. Capital expenditures are used on facility maintenance, including EHS maintenance. While we continue to fund capital expenditures for essential maintenance and safety measures, the reduction in capital expenditures on other items during this period could result in a decrease in reliability at our manufacturing sites.
We maintain property, business interruption, products liability and casualty insurance policies that we believe are in accordance with customary industry practices, as well as insurance policies covering other types of risks, including pollution legal liability insurance, but we are not fully insured against all potential hazards and risks incident to our business. Each of these insurance policies is subject to customary exclusions, deductibles and coverage limits, in accordance with industry standards and practices. As a result of market conditions, our loss history and other factors, our premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance may become unavailable or available to us only for reduced amounts of coverage. If an incident were to occur or we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Disruptions in production at our manufacturing facilities may have a material adverse impact on our business, results of operations and/or financial condition.
Manufacturing facilities in our industry are subject to planned and unplanned production shutdowns, turnarounds, outages and other disruptions. Any disruption at our facilities could impair our ability to use our facilities and have a material adverse impact on our revenues, increase our costs and expenses and negatively impact liquidity. Alternative facilities with sufficient capacity may not be available, may cost substantially more or may take significant time to increase production or qualify with our customers, any of which could negatively impact our business, results of operations, financial condition, and
liquidity. Unplanned production disruptions may occur for external reasons including natural disasters, weather, disease, strikes, power outages, telecommunication or utility failures, transportation interruption, government regulation, flood, political unrest, public crises, war or terrorism, or internal reasons, such as fire, unplanned maintenance or other manufacturing problems. Any such production disruption could have a material impact on our cash flows, results of operations and financial condition. We may also lose market share during a disruption in production due to customers who are forced to purchase products elsewhere or develop alternatives to our products and no longer purchase products from us after production is restored.
In addition, we rely on a number of vendors, suppliers and, in some cases, sole-source suppliers, service providers, toll manufacturers and collaborations with other industry participants to provide us with chemicals, feedstocks and other raw materials, along with energy sources and, in certain cases, facilities that we need to operate our business. If the business of these third parties is disrupted, some of these companies could be forced to reduce their output, shut down their operations or file for bankruptcy protection. If this were to occur, it could adversely affect their ability to provide us with the raw materials, energy sources or facilities that we need, which could materially disrupt our operations, including the production of certain of our products. Moreover, it could be difficult to find replacements for certain of our business partners without incurring significant delays or cost increases. Further, our ore feedstocks have a limited global supply and a change in the global supply landscape as a result of the closure of a mine could impact us even if we do not source our supply from that facility. All of these risks could have a material adverse effect on our business, results of operations, financial condition and liquidity.
While we maintain business recovery plans that are intended to allow us to recover from natural disasters or other events that could disrupt our business, we cannot provide assurances that our plans would fully protect us from the effects of all such disasters or from events that might increase in frequency or intensity due to climate change. In addition, insurance may not adequately compensate us for any losses incurred as a result of natural or other disasters. In areas prone to frequent natural or other disasters, insurance may become increasingly expensive or not available at all. Furthermore, some potential climate-driven losses, particularly flooding due to sea-level rises, may pose long-term risks to our physical facilities such that operations cannot be restored in their current locations.
We rely on our distributor network and third-party delivery services for the distribution and export of certain of our products. A significant disruption in these services or significant increases in prices for these services may disrupt our ability to deliver products or increase our costs.
We ship a significant portion of our products to our customers through our distributor network as well as independent third-party delivery companies. If any of our key distributors or third-party delivery providers experiences a significant disruption our products may not be delivered in a timely fashion. In addition, if our key distributors or third-party delivery providers increase prices, as we have experienced in recent years, and we are not able to pass along these increases to customers, find comparable alternatives or adjust our delivery network, our business, financial condition, results of operations and liquidity could be adversely affected.
Differences in views with our joint venture participants may cause our joint ventures not to operate according to their business plans or be able to effectively compete with operations of our competitors, which may adversely affect our results of operations.
We currently participate in joint ventures in Lake Charles, Louisiana with Kronos Worldwide, Inc. ("Kronos"), in Harrisburg, North Carolina with Lanxess and in Malaysia with Coogee Chemicals Pty. Ltd. The nature of a joint venture requires us to share control with third parties. Differences in views among joint venture participants may result in delayed decisions or failure to agree on major decisions. If these differences cause the joint ventures to deviate from their business plans or to fail to achieve their desired operating performance, we may not be able to effectively compete with operations of our competitors and our results of operations could be adversely affected.
Risks Related to Environmental, Health and Safety Matters
We are subject to many environmental, health and safety laws and regulations that may result in unanticipated costs or liabilities, which could reduce our profitability.
Our properties and operations, including our global manufacturing facilities, are subject to a broad array of EHS requirements, including extensive federal, state, local, foreign and international laws, regulations, rules and ordinances relating to pollution, protection of the environment and human health and safety, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. There has been a global upward trend in the number and complexity of current and proposed EHS laws and regulations, particularly in Europe, and including those relating to the chemicals used and generated in our operations and included in our substances and products. The costs to comply with
these EHS laws and regulations, as well as internal voluntary programs and goals, are significant and will continue to be significant in the foreseeable future and we may be more disadvantaged than our competitors given our European manufacturing footprint. Our facilities are dependent on environmental permits to operate. These operating permits are subject to modification, renewal and revocation, which could have a material adverse effect on our operations and our financial condition. In addition, third parties may contest our ability to receive or renew certain permits that we need to operate, which can lengthen the application process or even prevent us from obtaining necessary permits. Moreover, actual or alleged violations of permit requirements could result in restrictions or prohibitions on our operations and facilities. In the European Union ("EU"), a review of the Industrial Emissions Directive and the Large Volume Inorganic Chemicals BREF guidance are underway and these may result in changes to the operating permits at a number of plants operating in the EU.
In addition, we expect to incur significant capital expenditures and operating costs in order to comply with existing and future EHS laws and regulations. Capital expenditures and operating costs relating to EHS matters are subject to evolving requirements, and the timing and amount of such expenditures and costs will depend on the timing of the promulgation of the requirements as well as the enforcement of specific standards. Furthermore, the risk of non-compliance increases as regulatory standards become more complex and the cost of violation becomes higher.
We are also liable for the costs of investigating and remediation of environmental contamination on or from our currently-owned and operated properties. We also may be liable for environmental contamination on or from our formerly-owned and operated properties, and on or from third-party sites to which we sent hazardous substances or waste materials for disposal. In many circumstances, EHS laws and regulations impose joint, several, and/or strict liability for contamination, and therefore we may be held liable for cleaning up contamination at currently owned properties even if the contamination was caused by former owners, or at third-party sites even if our original disposal activities were in accordance with all then existing regulatory requirements. Moreover, certain of our facilities are in close proximity to other industrial manufacturing sites. In these locations, the source of contamination resulting from discharges into the environment may not be clear. We could potentially be held responsible for such liabilities even if the contamination did not originate from our sites, and we may have to incur significant costs to respond to any remedies imposed, or to defend any actions initiated, by environmental agencies.
Changes in EHS laws and regulations, violations of EHS law or regulations that result in civil or criminal sanctions, the revocation or modification of EHS permits, the bringing of investigations or enforcement proceedings against us by governmental agencies, the bringing of private claims alleging environmental damages against us, or the discovery of contamination on our current or former properties or at third-party disposal sites, could reduce our profitability or have a material adverse effect on our operations and financial condition.
Restrictions on disposal of waste from our manufacturing processes could result in higher costs and negatively impact our ability to operate our manufacturing facilities.
A variety of materials are generated by our manufacturing processes, some of which are saleable as products or byproducts and others of which are not and must be reused or disposed of as waste. Storage, transportation, reuse and disposal of waste are generally regulated by governmental authorities in the jurisdictions in which we operate. If existing arrangements for reuse or disposal of waste cease to be available to us as a result of new rules, regulations or interpretations thereof, exhaustion of reclamation activities, landfill closures, or otherwise, we will need to find new arrangements for reuse or disposal, which could result in increased costs to us and negatively impact our consolidated financial statements. For example, gypsum is generated by our TiO2 manufacturing facilities that use the sulfate process, such as those at Scarlino, Italy and Teluk Kalong, Malaysia. Gypsum produced at our Scarlino facility has been landfilled on-site and also transported for use in a reclamation project at Montioni, a nearby former quarry owned and operated by third parties. We continue to suspend TiO2 production from two of the three calciner streams at our Scarlino facility to reduce the rate at which the remaining gypsum capacity both on-site and in the Montioni reclamation project is consumed. At the current one-stream operating rate, we will soon not have sufficient capacity for the gypsum produced and as a consequence expect to stop production during the second quarter of 2023. If we do not receive approvals for additional gypsum storage capacity by the end of the first quarter of 2023, we may permanently close the site and subsequently incur associated site closure costs and have a material adverse effect on our operations and financial condition.
Classification of our products as a carcinogenic, mutagenic or reprotoxic chemical, known as a CMR chemical, or any increased regulatory scrutiny, could decrease demand for our products and subject us to manufacturing, labeling, transportation and waste disposal regulations that could significantly increase our costs.
On October 4, 2019, the European Commission published a regulation, which classified certain forms of TiO2 (in a powder form containing 1% or more of particles with aerodynamic diameter ≤ 10 μm) as a category 2 carcinogen, which is a suspected human carcinogen based on evidence obtained from human and/or animal studies but which is not sufficient for a
category 1 classification. The regulation applied from October 1, 2021. Following the U.K.’s withdrawal from the EU, the same classification of TiO2 as a suspected carcinogen was also published in the U.K.’s mandatory classification and labelling list and applied from October 1, 2021.
We have evaluated our TiO2 products using internationally recognized tests methods and determined that these are not subject to classification in the EU or U.K. as the products do not contain 1% or more of particles with aerodynamic diameter ≤ 10 μm.
On May 13, 2020, we and a number of other applicants filed a legal challenge seeking the annulment of the Commission Delegated Regulation of 2019, in so far as it concerns the classified of TiO2 as a carcinogenic substance by inhalation, in the General Court of the EU. On November 23, 2022, the Court annulled the classification concluding that the European Commission made a manifest error in its assessment of the reliability and acceptability of the study on which the classification is based, and that it had infringed the criterion according to which classification can relate only to a substance that has the intrinsic property to cause cancer. On February 8 2023 an appeal was filed by the EU Member State France. The effects of the judgement of the General Court of 23 November 2022 annulling the classification are suspended pending the outcome of the appeal.
On May 6, 2021 the European Food Safety Authority ("EFSA") published an opinion regarding the use of TiO2 (E171) as a food additive. The EFSA Opinion did not identify any immediate health concern linked to E171, however it identified uncertainties regarding the genotoxic effects of E171 used in food with a need to further investigation and concluded that TiO2 (E171) can no longer be considered safe when used as a food additive.
Following the EFSA opinion, the European Commission published a regulation on January 18, 2022 removing E171 from the list of approved food additives in the EU and requiring an assessment of the approval of the use of E171 in pharmaceutical products within three years of the publication of the regulation. The European Commission is also assessing the use of TiO2 in other consumer products including toys, cosmetics, pharmaceuticals and food contact applications to determining whether to implement restrictions on the use of TiO2 in these applications following the EFSA Opinion.
The adoption of the category 2 carcinogen classification in the EU or U.K. and the EFSA Opinion may negatively impact on public perception, market demand and prices of products containing TiO2. The EFSA Opinion has triggered assessments in other countries outside the EU and a number of other jurisdictions such as Switzerland and have imposed restrictions on the use of TiO2 in food which may increase our compliance obligations, impact consumer sentiment and decrease market demand. This may also impact powdered products with different chemistries but similar particle characteristics from our Performance Additives segment.
In July 2021, ECHA published its final decision regarding the substance evaluation of TiO2 pursuant to article 46 of the REACH Regulation, the Community rolling action plan ("CoRap"). Following the decision, the registrants of TiO2 are required to conduct and submit the results of a number of toxicological studies carried out on various forms of TiO2 to ECHA, and provide an updated REACH registration dossier, within 30 months of the date of the decision.
Sales of TiO2 in the EU represented 41% of our TiO2 revenues for the year ended December 31, 2022.
Our products, raw materials and operations are subject to chemical control laws in countries in which they are manufactured, transported or sold.
We are subject to a wide array of laws governing chemicals, including the regulation of chemical substances and inventories under the Toxic Substances Control Act ("TSCA") in the U.S. and the Registration, Evaluation, Authorisation and Restriction of Chemicals ("REACH") and the EU's classification and labelling ("CLP") regulations in Europe and the U.K. Analogous regimes exist or are being developed in other parts of the world, including China, South Korea, Turkey, Russia and Taiwan. In addition, a number of countries where we operate, including the U.K., have adopted rules to conform chemical labeling in accordance with the Globally Harmonized System of Classification and Labeling of Chemicals (“GHS”). Many of these regulatory regimes are in the process of a multi-year implementation period for these rules.
In addition to the regulatory review of new substances, there has been a more recent focus under the laws in the E.U., US, and other countries, to review the safety of substances which have been marketed for many years, particularly for chemicals that are being marketed in formulations which include the benefits of nanotechnology, or containing nanoparticles (e.g. under TSCA in the U.S. and REACH and the Food Additives Regulation in the EU).
TSCA reform legislation was enacted in the U.S. in June 2016, and the U.S. Environmental Protection Agency (the "EPA") has begun the process of issuing new chemical control regulations authorized by and, in many areas, required by the
legislation. The EPA issued several final rules under the revised TSCA related to existing chemicals, including the following: (i) a rule to establish the EPA’s process and criteria for identifying chemicals for risk evaluation; (ii) a rule to establish the EPA’s process for evaluating high priority chemicals and their uses to determine whether or not they present an unreasonable risk to health or the environment; and (iii) a rule to require industry reporting of chemicals manufactured or processed in the U.S. over the past 10 years. The EPA has also released its framework for approving new chemicals and new uses of existing chemicals based on whether they present an unreasonable risk to health or the environment. Such a finding could result in either the issuance of rules restricting the use of the chemical being evaluated or in the need for additional testing. These rules and the EPA’s risk determination for certain chemicals have been the subject of litigation and administrative review, and the costs of compliance with these regulations or relating to any new restriction or additional testing requirements that may be imposed cannot be estimated until the manner in which they will be implemented has been more precisely defined.
Governmental, regulatory and societal demands for increasing levels of product safety and environmental protection could result in increased pressure for more stringent regulatory control with respect to the chemical industry. In addition, these concerns could influence public perceptions regarding our products, raw materials and operations, the viability of certain products or raw materials, our reputation, the cost to comply with regulations, and the ability to attract and retain employees. Moreover, changes in product safety and environmental protection regulations could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, product safety and environmental matters may cause us to incur significant unanticipated losses, costs or liabilities, which could reduce our profitability.
We use a variety of substances from third parties in the manufacture, processing and handling of our products, and it is possible that a substance could be classified as harmful, which could negatively impact our ability to sell or market our products. For example, pursuant to the CLP, chemical substances and mixtures cannot be placed on the EU market unless they comply with the CLP’s requirements regarding classification, labelling and packaging. In 2019, new scientific data became available on Trimethylolpropane ("TMP"), and in December 2019 an EU supplier of this substance informed us that the REACH consortium responsible for TMP had self-classified TMP to be a suspected reproductive toxicant (Category 2). In 2022, Finland also notified ECHA of its intention to have TMP classified in reprotoxic category 1B. It is likely that Finland will submit its dossier to ECHA in 2023, which will be evaluated by ECHA’s Risk Advisory Committee. We manufacture and sell numerous types of TiO2 pigments and other products worldwide, some of which are treated with and/or contain TMP. We have taken action to comply with this regulation and continue to review the impact of this classification on our business in Europe and other regions.
Capital expenditures and costs relating to EHS matters will be subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose requirements on our operations. Capital expenditures and costs beyond those currently anticipated may therefore be required under existing or future EHS laws.
Our operations are increasingly subject to climate change regulations that seek to reduce emissions of GHGs.
We are currently managing and reporting GHG emissions, to varying degrees, at our sites worldwide. These locations are subject to a number of existing GHG-related laws and regulations. Potential consequences of such restrictions include capital requirements to modify assets to meet GHG emission restrictions and/or increases in energy costs above the level of general inflation, as well as direct compliance costs. Currently, however, it is not possible to estimate the likely financial impact of potential future regulation on any of our sites.
Recent developments in climate change-related policy and regulations include the Green Deal in the EU, mandatory Task Force on Climate-Related Financial Disclosures ("TCFD") disclosures in the U.K., the U.K. commitment to becoming carbon neutral by 2050, and similar policy changes and commitments in other nations worldwide including the announcement that the U.S. is rejoining the Paris Agreement. These changes could affect us in a number of ways including potential requirements to decarbonize manufacturing processes and increased costs of carbon emissions credits. For example, during 2021 we became a net purchaser of carbon emissions credits in the EU and the U.K. As with other jurisdictions, our operations in the U.S. may become subject to increasing climate change regulations and we are currently monitoring these developments closely whilst investigating appropriate climate change strategies to enable us to comply with the new regulations and conform to new disclosure requirements such as TCFD.
Increasing concentrations of GHGs in the earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other extreme climatic events. The severity of the changes varies in accordance with the models used to predict the changes, however, they could have adverse effects on our assets and operations. For example, we have a number of operations in low lying areas that may be at increased risk due to flooding, rising sea levels or disruption of operations from more frequent and severe weather events. These potential effects are also included in our investigation into appropriate climate change strategies.
Risks Related to Announced Transactions, Restructuring and Cost Reduction Programs
The proposed sale of our iron oxides business is contingent upon the satisfaction of a number of conditions, will require significant time and attention of our management and may have an adverse effect on us if not completed.
On November 14, 2022, we entered into a definitive agreement to sell our iron oxides business to Cathay Industries for an enterprise value of $140 million. Completion of the proposed sale is subject to the satisfaction of various closing conditions, including but not limited to regulatory approvals. There can be no assurance that any of such conditions will be satisfied and that the proposed sale will be successfully completed. The failure to satisfy the necessary closing conditions, or other unanticipated developments, could delay or prevent the transaction from closing or cause it to occur on terms or conditions that are less favorable than anticipated, which could have a negative impact on our liquidity.
Our ongoing businesses may be adversely affected as we pursue the proposed sale, and we may be subject to certain risks and consequences, including, but not limited to, the following:
•execution of the proposed sale has required, and will continue to require, significant time and attention from management, which may postpone the execution of other initiatives that may be beneficial to us;
•completion of the proposed sale will require strategic, structural and process realignment and restructuring actions within our operations, which may require associated expenditures and could lead to a disruption of our operations, as well as the loss of key personnel beneficial to the operation and growth of our remaining businesses; and
•whether or not the proposed sale is completed, we may be responsible for certain costs and expenses incurred for third party advisors, such as legal, accounting and other professional fees, which may be significant.
Any of these factors, or the impact of not being able to complete the sale, could have a material adverse effect on our financial condition, results of operations, cash flows and our liquidity.
If we are unable to successfully implement our cost reduction programs, we may not realize the benefits we anticipate from such programs or may incur additional and/or unexpected costs in order to realize them.
We commenced our 2022 Cost Reduction Program in the fourth quarter of 2022. This cost and operational improvement program is designed to increase annual EBITDA by $50 million compared to 2021, adjusted for the impact of foreign currency translation and inflation, by reducing selling, general and administrative expenses, and manufacturing costs through the implementation of more efficient operations and the reduction of manufacturing waste. We intend to complete all the actions necessary to deliver on our target by December 31, 2024.
Cost savings expectations are inherently difficult to predict and are necessarily speculative in nature, and we cannot provide assurance that we will achieve expected cost savings. A variety of factors could cause us not to realize some of the expected cost savings, including, among others, delays in the anticipated timing of activities related to our cost savings programs, lack of sustainability in cost savings over time, unexpected costs associated with operating our business, our ability to reduce headcount while retaining the necessary human capital to implement this plan, the lack of available liquidity to implement these cost savings measures and our ability to achieve the efficiencies contemplated by the cost savings initiative. We may be unable to realize all of these cost savings within the expected timeframe and we may incur additional or unexpected costs in order to realize them. These cost savings are based upon a number of assumptions and estimates that are in turn based on our analysis of the various factors which currently, and could in the future, impact our business. These assumptions and estimates are inherently uncertain and subject to significant business, operational, economic and competitive uncertainties and contingencies. Certain of the assumptions relate to business decisions that are subject to change, including, among others, our anticipated business strategies, our marketing strategies, our product development strategies and our ability to anticipate and react to business trends. Our ability to implement these cost savings measures will also be impacted by substantial doubt about our ability to continue as a going concern and actions we may take to mitigate these concerns, which may not align with such cost savings measures. Other assumptions relate to risks and uncertainties beyond our control, including, among others, the economic environment in which we operate, environmental regulation and other developments in our industry as well as conditions in the capital markets. The actual results of implementing the various cost savings initiatives may differ materially from the estimates set out in this report if any of these assumptions prove incorrect. Moreover, our continued efforts to implement these cost savings may divert management attention from the rest of our business and may preclude us from seeking attractive new opportunities, any of which may materially and adversely affect our business.
Costs from current and future restructuring programs and site closures may exceed our estimates and adversely affect our financial condition, results of operations, cash flows or business reputation.
We have implemented various restructuring initiatives to improve our operating efficiency, which have included in some instances the planned or completed closure of sites within our manufacturing network, including manufacturing sites in Pori (Finland), Calais (France) and a partial closure in Duisburg (Germany). We may announce additional restructuring programs and site closures in the future. Restructurings and site closures are complex and involve multiple aspects including environmental, government, regulatory, contractual and workforce matters. Costs and timeframes associated with restructurings or site closures have at times exceeded our estimates and it is possible that we may exceed projected costs and timeframes and not achieve targeted costs savings. Any material increase in restructuring or plant closure costs or timeframes could have a material impact on our consolidated financial statements.
Our aspirations, goals, and initiatives related to sustainability, and our public statements and disclosures regarding them, may expose us to risk.
We have developed and publicized, and expect to continue to establish, goals, targets, and other objectives related to sustainability matters. Our efforts to establish, accomplish, and accurately report on these goals, targets, and objectives could expose us to operational, reputational, financial, legal, and other risks. Our ability to achieve any stated goal, target, or objective is and will be subject to numerous factors and conditions, many of which are outside of our control, such as evolving regulatory or quasi-regulatory sustainability standards, differing requirements throughout the world and the pace of technological change. Achievement of these goals and initiatives may also be impacted by our plans to mitigate concerns around our ability to continue as a going concern as resources that would have been previously committed to sustainability initiatives may be diverted towards our mitigation plans.
We may face increased scrutiny from shareholders, other stakeholders and regulators related to our sustainability activities, including the goals, targets, and objectives that we announce, and our methodologies and timelines for pursuing them. If our sustainability practices do not meet shareholder or other stakeholder expectations and standards, which continue to evolve, our reputation, ability to attract or retain employees, and attractiveness as an investment, business partner, or as an acquiror could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets, and objectives, to comply with ethical, environmental, or other standards, regulations, or expectations, or to satisfy various reporting standards with respect to these matters, within the timelines that we anticipate or at all, could have the same negative impacts, as well as expose us to government enforcement actions and litigation. Even if we achieve the goals, targets, and objectives we set, we may not realize all of the benefits anticipated at the time they were established.
Risks Related to our Human Capital
Certain of our pension and postretirement benefit plan obligations are currently unfunded or underfunded, and under certain circumstances we may have to significantly increase the level of cash funding to some or all of these plans, which would reduce the cash available for our business.
We have underfunded and unfunded obligations under our pension and postretirement benefit plans. The funded status of our pension plans is dependent upon many factors, including returns on invested assets, the level of certain market interest rates and the discount rate used to determine pension obligations. Unfavorable returns on plan assets or unfavorable changes in applicable laws or regulations, or in the application of laws or regulations to us by pension regulators or trustees, could materially change the timing and amount of required plan funding, which would reduce the cash available for our business. Also, a decrease in the discount rate used to determine pension obligations could result in an increase in the valuation of pension obligations, which could affect the reported funding status of our pension plans and future contributions, as well as the periodic pension cost in subsequent fiscal years. In addition, we have undertaken restructuring initiatives and site closures at locations within our manufacturing network that could impact our funding obligations as a result of funding rules specific to the jurisdiction in which the restructuring initiative or site closure occurs. As of December 31, 2022, our underfunded and unfunded deficit under our defined benefit plans was $20 million, the majority of which related to funding obligations for our pension plans in Finland and Germany. If current or future restructuring initiatives or site closures were to cause or require an acceleration of our funding obligations under our pension and post-retirement benefit plans, it could have an adverse impact on our business, financial condition, results of operations and cash flows.
With respect to our pension and postretirement benefit plans, the effects of underfunding depend on the country in which the pension and postretirement benefit plan is established. In the U.K. and Germany, semi-public pension protection programs have the authority, in certain circumstances, to assume responsibility for underfunded pension schemes, including the right to recover the amount of the underfunding from us. The Finnish Financial Supervisory Authority has the authority to
recommend that we assign the underfunded pension scheme to a third-party insurance company, which would maintain the member benefits at the Company’s cost. In the US, the Pension Benefit Guaranty Corporation ("PBGC") has the authority to terminate an underfunded tax-qualified pension plan under limited circumstances in accordance with the Employee Retirement Income Security Act of 1974, as amended. In the event our tax-qualified pension plans are terminated by the PBGC, we could be liable to the PBGC for the entire amount of the underfunding.
Our flexibility in managing our labor force may be adversely affected by existing or new labor and employment laws and policies in the jurisdictions in which we operate, many of which are more onerous than those of the U.S.; and some of our labor force has substantial workers’ council or trade union participation, which creates a risk of disruption from labor disputes.
The global nature of our business presents difficulties in hiring and maintaining a workforce in certain countries. The majority of our employees are located outside the U.S. In many of these countries, including the U.K., Italy, Germany, France, Spain, Finland and Malaysia, labor and employment laws may be more onerous than in the U.S. and, in many cases, grant significant job protection to employees, including rights on termination of employment.
We are required to consult with, and seek the consent or advice of, various employee groups or works councils that represent our employees for any changes to our activities or employee benefits. This requirement could have a significant impact on our flexibility in managing costs and responding to market changes and could further increase the risk of completing our cost savings plans.
Risks Related to our International Operations, Regulations, Taxation and Foreign Currency
Our results of operations may be adversely affected by fluctuations in currency exchange rates and tax rates and changes in tax laws in the jurisdictions in which we operate.
We conduct a majority of our business operations outside the U.S. Sales to customers outside the U.S. contributed 71% of our revenue in 2022. Our operations are subject to international business risks, including the need to convert currencies received for our products into currencies in which we purchase raw materials or pay for services, which could result in a gain or loss depending on fluctuations in exchange rates. We transact business in many foreign currencies, including the euro, the British pound sterling, the Malaysian ringgit and the Chinese renminbi. We translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during the reporting period or the exchange rate at the end of that period. During times of a strengthening U.S. dollar, our reported international sales and earnings may be reduced because the local currency may translate into fewer U.S. dollars. Because of our global operations, we are exposed to fluctuations in global currency rates which may result in gains or losses on our financial statements. While we have a hedging program in place to manage our global currency risk, these hedges may not fully mitigate the impact of currency exchange rate fluctuations, or may result in us not realizing gains in periods where the U.S. dollar is weakening.
We are subject to income taxation in the U.S. (federal and state) and numerous international jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. In particular, governmental agencies in domestic and international jurisdictions in which we and our affiliates do business, as well as the Organization for Economic Cooperation and Development, have recently focused on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting”, where profits are claimed to be earned for tax purposes in low-tax jurisdictions, or payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. In addition, our effective tax rates could be affected by numerous factors, such as intercompany transactions (including our eligibility to qualify for benefits under certain tax treaties in connection with the making of certain inter-company movements of cash), the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we are subject to lower statutory rates and higher than anticipated in jurisdictions where we are subject to higher statutory rates, the applicability of special tax regimes, losses incurred in jurisdictions in which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies, changes to our existing businesses and operations, acquisitions (including integrations) and investments and how they are financed, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, changes in our eligibility to qualify for benefits under certain tax treaties, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations.
We are also currently subject to audit in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles,
and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.
In addition, we have recorded valuation allowances which result from our analysis of positive and negative evidence supporting the realization of tax benefits. Negative evidence includes a cumulative history of pre-tax operating losses in specific tax jurisdictions and significant concerns about our ability to continue as a going concern. Changes in valuation allowances have resulted in material fluctuations in our effective tax rate. Economic conditions may dictate the continued imposition of current valuation allowances and, potentially, the establishment of new valuation allowances and releases of existing valuation allowances. While significant valuation allowances remain, our effective tax rate will likely continue to experience significant fluctuations.
The impact of differing and evolving international laws and regulations on trade or the manner of interpretation or enforcement of existing laws or regulations could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.
Compliance with international laws and regulations on trade is complicated by our substantial global footprint, which requires significant resources to ensure compliance with applicable laws and regulations in the various countries where we conduct business. Our global operations expose us to trade and economic sanctions and other restrictions imposed by the U.S., the EU and other governments and organizations. The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the U.S. Foreign Corrupt Practices Act ("FCPA") and other federal statutes and regulations, including those established by the Office of Foreign Assets Control ("OFAC"). Under these laws and regulations, as well as other anti-corruption laws, anti-money-laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations could adversely impact our business, results of operations and financial condition.
We cannot assure you that our policies and procedures are sufficient or that directors, officers, employees, representatives, manufacturers, supplier and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, OFAC restrictions or other export control, anti-corruption, anti-money-laundering and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ordinary shares.
A corporation organized or incorporated outside the U.S. generally will be classified as a passive foreign investment company ("PFIC") for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules with respect to the income and assets of certain subsidiaries, either: (1) at least 75% of its gross income is classified as "passive income" (as defined in the Code) or (2) at least 50% of the average value of its total assets (which, assuming our stock is publicly-traded for the year being tested, would be measured by the fair market value of our assets) is attributable to assets that produce “passive income”or are held for the production of "passive income." U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to certain distributions they receive from the PFIC, and the gain, if any, they derive from the sale, exchange or other taxable disposition of their interests in the PFIC.
Based on our market capitalization and the composition of our assets, income and operations, we do not believe that we currently are a PFIC, and we do not expect to become a PFIC in future taxable years. However, our status as a PFIC in any taxable year will depend on our assets, income and activities in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable years, and it is possible that the U.S. Internal Revenue Service (“IRS”) may take a contrary position with respect to our determination in any particular year. See “Part I, Item 10. Material U.S. Federal Income Tax Considerations for U.S. Holders—Passive Foreign Investment Company Considerations.”
If a U.S. person is treated as owning at least 10% of our ordinary shares, U.S. holders of our ordinary shares may be subject to adverse U.S. federal income tax consequences.
If a U.S. person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “United States shareholder” within the meaning of Section 951 of the Code (as define below) with respect to each “controlled foreign corporation.” Depending on the amount of United States shareholder ownership of our ordinary shares, we and certain of our non-U.S. subsidiaries may be treated as a controlled foreign corporation for U.S. federal income tax purposes. In addition, since the Company includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation). A U.S. shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a U.S. shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a U.S. shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a U.S. shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such U.S. shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist holders of our ordinary shares in determining whether we or any of our non-U.S. subsidiaries are treated as a controlled foreign corporation or whether any holder of ordinary shares is treated as a U.S. shareholder with respect to any such controlled foreign corporation or furnish to any U.S. shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. The IRS has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and taxpaying obligations with respect to foreign-controlled controlled foreign corporations. A U.S. holder should consult its tax advisors regarding the potential application of these rules to an investment in our ordinary shares.
Our ability to use our U.S. net operating loss carryforwards to offset future taxable income may be subject to certain limitations
Section 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended (the "Code") imposes annual limitation on utilization of tax attributes, including net operating loss carryforwards, if ownership change occurs. In general, an ownership change, as defined by Section 382, results when the ownership of certain stockholders or public groups increases by more than 50 percentage points over a three-year period. If an ownership change occurs, the annual limitation on the future utilization of tax attributes existing on the change date is equal to the value of the stock of the corporation times the long term tax exempt rate. This amount may then be increased or decreased in the five years after the change by recognized built in gains or losses that existed in the company’s assets on the change date. SK Capital’s acquisition of 42.5 million Company shares from Huntsman on December 23, 2020 resulted in a change of control pursuant to Section 382. As a result, certain of our deferred tax assets, including U.S. tax net operating losses with an unlimited carryforward period, will be subject to an annual limitation on the amount of taxable income which can be offset by those limited attributions. The limitations from the ownership change may cause us to pay U.S. federal income taxes earlier than we otherwise would have paid them. If we undergo another ownership change in the future, we may be further limited in our utilization of the net operating losses existing at the time of such ownership change. Future regulatory changes could also limit our ability to utilize our net operating losses.
Risks Related to Litigation and Privacy
Our operations, financial condition and liquidity could be adversely affected by legal claims against us.
We face risks arising from various legal actions, including matters relating to antitrust, product liability, third party liability, intellectual property, contract disputes, industrial illness, labor disputes and environmental claims. It is possible that judgments could be rendered against us in these cases or others for which we could be uninsured or not covered by indemnity, or which may be beyond the amounts that we currently have reserved or anticipate incurring for such matters. In the past, antitrust claims have been made against TiO2 companies, including us. In this type of litigation, the plaintiffs generally seek treble damages, which may be significant. Certain of our existing legal claims could result in significant judgments against us. An adverse outcome in any claim could be material and significantly impact our operations, financial condition and liquidity. For more information, see "Part III. Item 18. Financial Statements — Note 22. Commitments and Contingencies — Legal Matters" of this report.
Increasing regulatory focus on privacy issues and expanding laws could impact our business and expose us to increased liability.
As a global company, we are subject to global privacy and data security laws, regulations, and codes of conduct that apply to our various business units. These laws and regulations may be inconsistent across jurisdictions and are subject to evolving and differing (sometimes conflicting) interpretations. Government regulators, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This increased scrutiny may result in new interpretations of existing laws, thereby further impacting our business. Globally, laws such as the General Data Protection Regulation ("GDPR") in Europe, state laws in the U.S. on privacy, data and related technologies as well as industry self-regulatory codes create new compliance obligations and expand the scope of potential liability, either jointly or severally with our customers and suppliers. While we have invested in readiness to comply with applicable requirements, these new and emerging laws, regulations and codes may affect our ability to reach current and prospective customers, to respond to customer requests under the laws, and to implement our business effectively. Any perception of our practices, products or services as a violation of privacy rights may subject us to public criticism, reputational harm, or investigations or claims by regulators, industry groups or other third parties, all of which could disrupt our business and expose us to increased liability.
General Risk Factors
We are subject to risks relating to our information technology systems, and any failure to adequately protect our critical information technology systems and manufacturing process control systems could materially affect our operations.
We rely on information technology systems and manufacturing process control systems across our operations, including for management, operations, supply chain, financial information and various other processes and transactions. Our ability to effectively manage our business depends on the security, reliability and capacity of these systems. System failures, network disruptions or breaches of security could disrupt our operations, cause delays or cancellations of customer orders or impede the manufacture or shipment of products, processing of transactions or reporting of financial results. Our information technology systems and manufacturing process control systems, and those of our business partners, are subject to the risk of cyberattacks, including attacks resulting from phishing emails and ransomware infections. We are the subject of cyberattacks that may be intended to capture business information, disrupt our manufacturing or other operations, access our customers’ information or harm our reputation as a company. We expect that there will continue to be cyberattacks and the measures we have taken to prevent or mitigate such attacks may not be effective, particularly as we continue remote working arrangements begun during the COVID-19 pandemic. The processes used by attackers are evolving in sophistication and increasing in frequency. Cyberattacks or other problems with our systems may result in a compromise of our manufacturing process control systems, the disclosure of proprietary information about our business or confidential information concerning our customers or employees. Any of these problems could result in significant negative impacts on our business, potentially catastrophic disruptions to our operations, damage to or destruction of our assets, injuries or deaths to people, adverse impacts on the environment and harm to our reputation.
In addition, following the pandemic and the related increase in remote working by our personnel and personnel of other companies, the risk of cyber-attacks, data breaches or similar events, whether through our systems or those of third parties on which we rely, has increased. Further risks associated with the increase in remote working by our personnel may include a diminished ability to deter and detect any unlawful activity by our personnel, such as noncompliance with the FCPA or the U.K. Bribery Act.
We have put in place security measures and disaster recovery plans designed to protect against the misappropriation or corruption of our systems, intentional or unintentional disclosure of confidential information, or disruption of our operations. Current employees have, and former employees may have, access to a significant amount of information regarding our operations which could be disclosed to our competitors or otherwise used to harm us. Moreover, our operations in certain locations, such as China, may be particularly vulnerable to security attacks or other problems. Any breach of our security measures could result in unauthorized access to and misappropriation of our information, corruption of data or disruption of operations or transactions, any of which could have a material adverse effect on our business.
In addition, we could be required to expend significant additional amounts to respond to information technology issues or to protect against threatened or actual security breaches. We may not be able to implement measures that will protect against the significant risks to our information technology systems.
Conflicts, military actions, terrorist attacks, public health crises, including the occurrence of a contagious disease or illness, such as the COVID-19 coronavirus, cyber-attacks and general instability, particularly in certain energy-producing nations, along with increased security regulations related to our industry, could adversely affect our business.
We are vulnerable to the effects of conflicts, military actions, terrorist attacks and public health crises. As has been the case with COVID-19, such effects have precipitated economic instability and turmoil in financial markets. Instability and turmoil, particularly in energy-producing nations, may result in raw material cost increases. The uncertainty and economic disruption resulting from hostilities, military action, acts of terrorism, public health crises or cyber-attacks may impact any or all of our facilities and operations or those of our suppliers or customers. Accordingly, any conflict, military action, terrorist attack, public health crises or cyber-attack that impacts us or any of our suppliers or customers, could have a material adverse effect on our business, results of operations, financial condition and liquidity.
In addition, a number of governments have instituted regulations attempting to increase the security of chemical plants and the transportation of hazardous chemicals, which could result in higher operating costs and could have a material adverse effect on our financial condition and liquidity.
Risks Related to Our Relationship with SK Capital
SK Capital owns just under 40% of our ordinary shares, with an option to acquire an additional 9%, and its interests may conflict with yours.
On December 23, 2020, we announced that funds advised by SK Capital closed on the previously announced agreement to purchase approximately 42.4 million shares, representing just under 40% of our outstanding shares, from Huntsman for a purchase price of approximately $100 million. The agreement includes a 30-month option for the purchase of Huntsman’s remaining approximate 9.7 million shares it holds. We are not a party to this agreement. On January 4, 2021, we announced the election of three directors associated with SK Capital and the resignation of two members of our Board. As a result of these events, SK Capital may exert significant influence over our business objectives and policies, including whether to continue as a publicly listed company, the composition of our board of directors and any action requiring the approval of our shareholders, such as the adoption of amendments to our articles of association, and the approval of mergers or a sale of substantially all of our assets. This concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or impossible without the support of SK Capital and could discourage others from making tender offers, which could prevent shareholders from receiving a premium for their shares. SK Capital’s interests may conflict with your interests as a shareholder.
Certain members of our Board may have actual or potential conflicts of interest because of their association with SK Capital.
Certain members of our Board are associated with SK Capital, which could create, or appear to create, potential conflicts of interest when our directors are faced with decisions that could have different implications for SK Capital and us. The four members associated with SK Capital are Barry B. Siadat, Aaron C. Davenport, Daniele Ferrari and Heike van de Kerkhof. So long as SK Capital beneficially owns ordinary shares representing a significant percentage of the votes entitled to be cast by the holders of our outstanding ordinary shares, SK Capital can exert significant influence over our Board.
Risks Related to Our Relationship with Huntsman
We have agreed to indemnify Huntsman for certain liabilities, including those related to the operation of our business while it was still owned by Huntsman, and while Huntsman will indemnify us for certain liabilities, such indemnities may not be adequate.
Pursuant to the separation agreement and other agreements with Huntsman, we agreed to indemnify Huntsman for certain liabilities, including those related to the operation of our business while it was still owned by Huntsman, in each case for uncapped amounts. Indemnity payments that we may be required to provide Huntsman may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for liabilities that Huntsman has agreed to retain. Further, there can be no assurance that the indemnity from Huntsman for its retained liabilities will be sufficient to protect us against the full amount of such liabilities, or that Huntsman will be able to fully satisfy its indemnification obligations to us. Moreover, even if we ultimately succeed in recovering from Huntsman any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves.
We could have significant tax liabilities for periods during which Huntsman operated our business.
For any tax periods (or portions thereof) prior to the separation and our IPO, we or one or more of our subsidiaries will be included in consolidated, combined, unitary or similar tax reporting groups with Huntsman (including Huntsman’s consolidated group for U.S. federal income tax purposes). Applicable laws (including U.S. federal income tax laws) often provide that each member of such a tax reporting group is liable for the group’s entire tax obligation. Thus, to the extent Huntsman or other members of a tax reporting group of which we or one of our subsidiaries was a member fails to make any tax payments required by law, we could be liable for the shortfall. Huntsman will indemnify us for any taxes attributable to Huntsman and the internal reorganization and separation transactions that we or one of our subsidiaries are required to pay as a result of our (or one of our subsidiaries’) membership in such a tax reporting group with Huntsman. We will also be responsible for any increase in Huntsman’s tax liability for any period in which we or any of our subsidiaries are combined or consolidated with Huntsman to the extent attributable to our business (including any increase resulting from audit adjustments). Furthermore, with respect to periods prior to the separation in which one or more of Huntsman’s subsidiaries are included in a consolidated, combined, unitary or similar tax reporting group with us, and if one or more of Huntsman’s subsidiaries receives an adjustment that increases taxable income, such adjustment may result in the utilization of Venator tax attributes. The use of such Venator attributes would be free of charge to Huntsman and would result in the reduction of our deferred tax assets along with an increase in deferred tax expense in cases where no valuation allowance has been recognized against such deferred tax assets.
In addition, we will also be responsible for any taxes due with respect to tax returns that include only us and/or our subsidiaries for tax periods (or portions thereof) prior to the separation and our IPO.
Further, by virtue of the tax matters agreement, Huntsman effectively controls certain of our tax decisions in connection with any tax reporting group tax returns in which we (or any of our subsidiaries) are included. The tax matters agreement provides that Huntsman has sole authority to respond to and conduct all tax proceedings (including tax audits) and to prepare and file all such reporting group tax returns in which we or one of our subsidiaries are included on our behalf (including the making of any tax elections). This arrangement may result in conflicts of interest between Huntsman and us. See "Part III. Item 13. Certain Relationships and Related Party Transactions, and Director Independence."
In addition, for U.S. federal income tax purposes Huntsman recognized a gain as a result of the internal restructuring and IPO to the extent the fair market value of the assets associated with our U.S. businesses exceeded the basis of such assets for U.S. federal income tax purposes at the time of the separation. As a result of such gain recognized, the basis of the assets associated with our U.S. businesses increased. Pursuant to the tax matters agreement entered into at the time of the separation, we are required to make a future payment to Huntsman for any actual U.S. federal income tax savings we recognize as a result of any such basis increase for tax years through December 31, 2028. As of each of December 31, 2022 and 2021, we expected future payments to be $21 million.
See "Part III. Item 18. Financial Statements — Note 19. Income Taxes" of this report for the amount of our known contingent tax liabilities. We currently have no reason to believe that we have any unrecorded outstanding tax liabilities from prior years; however, due to the inherent complexity of tax law, the many countries in which we operate, and the unpredictable nature of tax authorities, we believe there is inherent uncertainty.
The amount of tax for which we are liable for taxable periods preceding the separation may be impacted by elections Huntsman makes on our behalf.
Under the tax matters agreement, Huntsman has the right to make all elections for taxable periods preceding the separation and our IPO. As a result, the amount of tax for which we are liable for taxable periods preceding the separation and our IPO may be impacted by elections Huntsman makes on our behalf.
Risks Related to Our Ordinary Shares
If we cannot regain compliance with the rules of the New York Stock Exchange (the “NYSE”) pertaining to a minimum average price per share, the NYSE may delist our stock, which could negatively affect our company, the price of our ordinary shares and our shareholders’ ability to sell our ordinary shares.
On November 2, 2022, we received notice from the NYSE that we were no longer in compliance with the continued listing standard set forth in Section 802.01C of the NYSE’s Listed Company Manual because the average closing price of the Company’s ordinary shares was less than $1.00 per share over a consecutive 30 trading-day period. In order to regain compliance, on the last trading day of any calendar month during the cure period or on the last business day of the six-month cure period, the Company’s ordinary shares must demonstrate (i) a closing price of at least $1.00 per share and (ii) an average
closing share price of at least $1.00 over the 30 trading-day period ending on such date. There can be no assurances that the Company will meet continued listing standards within the specified cure period.
If we are unable to satisfy the NYSE criteria for continued listing, our ordinary shares would be subject to delisting. A delisting of our ordinary shares could negatively impact us by, among other things, reducing the liquidity and market price of our ordinary shares; reducing the number of investors willing to hold or acquire our ordinary shares (including because certain non-corporate U.S. investors may not qualify for the preferential rates of taxation with respect to any dividends made on our ordinary shares if we are not eligible for the benefits of a comprehensive tax treaty with the United States), which could negatively impact our ability to raise equity financing; decreasing the amount of news and analyst coverage of the Company; and limiting our ability to issue additional securities or obtain additional financing in the future, which could put additional pressure on our liquidity and ability to continue to operate as a going concern. In addition, delisting from the NYSE may negatively impact our reputation and, consequently, our business.
A number of our shares are eligible for future sale, which may cause the market price of our ordinary shares to decline.
Any sales of substantial amounts of our ordinary shares in the public market or the perception that such sales might occur may cause the market price of our ordinary shares to decline and impede our ability to raise capital through the issuance of equity securities. We may issue additional ordinary shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares or any substantially similar securities.
In connection with the IPO and the separation, we and Huntsman entered into a Registration Rights Agreement, pursuant to which we agreed, upon the request of Huntsman, to use our best efforts to effect the registration under applicable securities laws of the disposition of our ordinary shares retained by Huntsman. In connection with its sale of just under 40% of our outstanding shares to SK Capital in December 2020, Huntsman partially assigned the Registration Rights Agreement to SK Capital. Subject to prevailing market and other conditions, any future monetization may be effected in additional follow-on capital markets transactions or block transactions that permit an orderly distribution of SK Capital's or Huntsman's ordinary shares.
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation organized in Delaware and these differences may make our ordinary shares less attractive to investors.
We are incorporated under the laws of England and Wales. The rights of holders of our ordinary shares are governed by English law, including the provisions of the Companies Act 2006, and by our articles of association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations organized in Delaware, including with respect to preemptive rights, distribution of dividends, limitation on derivative suits, and certain heightened shareholder approval requirements.
U.S. investors may have difficulty enforcing civil liabilities against us, our directors or members of senior management.
We are incorporated under the laws of England and Wales. The U.S. and the U.K. do not currently have a treaty providing for the recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. The enforceability of any judgment of a U.S. federal or state court in the U.K. will depend on the laws and any treaties in effect at the time, including conflicts of laws principles (such as those bearing on the question of whether a U.K. court would recognize the basis on which a U.S. court had purported to exercise jurisdiction over a defendant). In this context, there is doubt as to the enforceability in the U.K. of civil liabilities based solely on the federal securities laws of the U.S. In addition, awards for punitive damages in actions brought in the U.S. or elsewhere may be unenforceable in the U.K. An award for monetary damages under the U.S. securities laws would likely be considered punitive if it did not seek to compensate the claimant for loss or damage suffered and was intended to punish the defendant.
Provisions in our articles of association are intended to have anti-takeover effects that could discourage an acquisition of us by others and may prevent attempts by shareholders to replace or remove our current management.
Certain provisions in our articles of association are intended to have the effect of delaying or preventing a change in control or changes in our management. For example, our articles of association include provisions that establish an advance notice procedure for shareholder resolutions to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors. U.K. law also prohibits the passing of written shareholder resolutions by public companies. In addition, our articles of association provide that we may not engage in a business combination with an interested shareholder for a period of three years after the time of the transaction in which the person became an interested shareholder unless our board of directors, prior to the time of the transaction in which the person became
an interested shareholder, approves the business combination or the transaction in which the shareholder becomes an interested shareholder, or under other specified limited circumstances. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management, even if these events would be beneficial for our shareholders.
Pre-emption rights for U.S. and other non-U.K. holders of shares may be unavailable.
In the case of certain increases in our issued ordinary share capital, under English law, existing holders of our ordinary shares are entitled to pre-emption rights to subscribe for such shares, unless shareholders dis-apply such rights by a special resolution at a shareholders’ meeting. There is no current dis-application in force, as the existing dis-application has expired, but we intend to propose equivalent resolutions at our next annual general meeting of shareholders. We cannot assure prospective U.S. investors that any exemption from the registration requirements of the Securities Act or applicable non-U.S. securities laws would be available to enable U.S. or other non-U.K. holders to exercise such pre-emption rights or, if available, that we will utilize any such exemption. For more information on the potential issuance of a material number of ordinary shares or securities convertible into our ordinary shares in connection with the strategic review of our business and plan to strengthen our liquidity position and engage our shareholders and debtholders with respect to our capital structure, please see “Risks Related to our Liquidity and Capital Resources—We may not be able to raise additional capital in the future on favorable terms or at all, which could materially adversely affect our financial condition and results of operations. including our inability to continue as a going concern.”
Transfers of our shares may be subject to stamp duty or stamp duty reserve tax in the U.K., which would increase the cost of dealing in our shares.
Stamp duty or stamp duty reserve tax ("SDRT"), are imposed in the U.K. on certain transfers of chargeable securities (which include shares in companies incorporated in the U.K.) at a rate of 0.5% of the consideration paid for the transfer. Certain issues or transfers of shares to depositories or into clearance systems may be charged at a higher rate of 1.5%.
Our shareholders are strongly encouraged to hold shares in book entry form through the facilities of The Depository Trust Company ("DTC"). Transfers of shares held in book entry form through DTC do not currently attract a charge to stamp duty or SDRT in the U.K. A transfer of title in the shares from within the DTC system out of DTC and any subsequent transfers that occur entirely outside the DTC system, will attract a charge to stamp duty at a rate of 0.5% of any consideration, which is payable by the transferee of the shares. Any such duty must be paid (and the relevant transfer document, if any, stamped by HM Revenue & Customs ("HMRC")) before the transfer can be registered in the books of Venator. However, if those shares are redeposited into DTC, the redeposit will attract stamp duty or SDRT at the rate of 1.5% to be paid by the transferor.
We have put in place arrangements to require that shares held in certificated form cannot be transferred into the DTC system until the transferor of the shares has first delivered the shares to a depositary specified by us so that SDRT may be collected in connection with the initial delivery to the depositary. Any such shares will be evidenced by a receipt issued by the depositary. Before the transfer can be registered in our books, the transferor will also be required to put the depositary in funds to settle the resultant liability to SDRT, which will be charged at a rate of 1.5% of the value of the shares.
As a result of changes in law because of Brexit, we are no longer able to deliver shares directly to the DTC for deposit and clearing within the DTC facilities. Instead, an arrangement is in place whereby the shares are indirectly issued to the DTC through the issuance of shares to a third party depositary nominee, subsequent issuance and cancellation of depositary receipts and transfer of the shares from the depositary nominee to DTC’s nominee Cede & Co. for further delivery into the DTC system, a process which is exempt from stamp duty under existing U.K. law. If this arrangement were to be disallowed under U.K. law, then transactions in our securities may be disrupted.
The facilities of DTC are a widely-used mechanism that allow for rapid electronic transfers of securities between the participants in the DTC system, which include many large banks and brokerage firms. Our ordinary shares are currently eligible via the method described above for deposit and clearing within the DTC system. We have entered into arrangements with DTC whereby we agreed to indemnify DTC for any SDRT that may be assessed upon it as a result of its service as a depository and clearing agency for our shares. However, DTC generally has discretion to cease to act as a depository and clearing agency for the shares. While we would pursue alternative arrangements to preserve our listing and maintain trading, any such disruption could have a material adverse effect on the market price of our ordinary shares.
Our business and operations could be negatively affected if we become subject to a campaign from a shareholder activist, which could cause us to incur significant expense, divert management’s attention and resources, hinder the implementation of our strategic review initiatives, and have an adverse impact on our financial results and the price of our ordinary shares.
Shareholder activism, which can take many forms or arise in a variety of situations, has been increasing for public companies and could result in substantial costs to us, divert attention and valuable resource of our Board, management and employees, and disrupt our operations. On January 10, 2023 for instance, we received a letter from an approximately 14.3% shareholder of Venator, J&T MS 1 SICAV (together with its affiliates, “J&T”), which was made publicly available and in which J&T expressed concerns about Venator’s financial and share price performance and our business strategy.
While we value open dialogue and continue to engage regularly with our shareholders, activist campaigns could be led by shareholders that have interests that are different from the majority of our shareholders and our Board, and may not be in the best interest of Venator. Further, shareholder activism could have an adverse impact on the price of our ordinary shares and give rise to perceived uncertainties as to our future direction, strategy or leadership. Shareholder activism could also adversely affect our relationships with customers and suppliers, may result in the loss of potential business opportunities, may make it more difficult for us to attract new or retain existing investors, customers, directors, employees or other partners, and may impact the manner in which we operate our business in ways we do not currently anticipate. Activist shareholders could also hinder the implementation of strategic initiatives that we are undertaking and may undertake in the future in order to address the near-term challenges to our business. As a result, we may be required to retain additional services of various professionals to advise us in matters related to shareholder activism, including legal, financial and communications advisers, the costs of which may negatively impact our financial results.
Risks Related to Our Status as a Foreign Private Issuer
As a foreign private issuer, we are exempt from a number of rules or regulations under the U.S. securities laws and are permitted to file less information with the SEC than U.S. public companies.
We are a "foreign private issuer," as defined in the SEC rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the U.S. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and other requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Further, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.
As a foreign private issuer, we file annual reports on Form 20-F within four months of the close of each fiscal year ended December 31 and reports on Form 6-K relating to certain material events promptly after we publicly announce these events. However, because of the above exemptions for foreign private issuers, our shareholders are not afforded the same protections or information generally available to investors holding shares in public companies organized in the U.S.
While we are a foreign private issuer, we are not subject to certain NYSE corporate governance listing standards applicable to U.S. listed companies.
We are entitled to rely on a provision in the corporate governance listing standards of the NYSE that allows us to follow English corporate law and the U.K. Companies Act with regard to certain aspects of corporate governance. This allows us to follow certain corporate governance practices that differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on the NYSE.
For example, we are exempt from NYSE regulations that require a listed U.S. company to (1) have a majority of the board of directors consist of independent directors, (2) require regularly scheduled executive sessions with only independent directors each year and (3) have a remuneration committee or a nominations or corporate governance committee consisting entirely of independent directors.
In accordance with our NYSE listing, our audit committee is required to comply with the provisions of Section 301 of the Sarbanes-Oxley Act and Rule 10A-3 of the Exchange Act, both of which are also applicable to NYSE-listed U.S. companies. Because we are a foreign private issuer, however, our audit committee is not subject to additional New York Stock Exchange requirements applicable to listed U.S. companies, including an affirmative determination that all members of the
audit committee are “independent” under more stringent criteria than those applicable to us as a foreign private issuer. Furthermore, the corporate governance listing standards of the NYSE require listed U.S. companies to, among other things, seek shareholder approval for the implementation of certain equity compensation plans and issuances of ordinary shares, which we are not required to follow as a foreign private issuer.
While historically we have not utilized any of the above exemptions and believe that we comply with all NYSE corporate governance listing standards applicable to U.S. listed companies, if a material number of ordinary shares are issued in connection with a restructuring or refinancing of our existing debt, including in exchange for existing debt, or to provide additional liquidity, we expect to use the accommodations granted to foreign private issuers by NYSE rules, which permit foreign private issuers not to seek shareholder approval for the issuance of 20% or more of their outstanding ordinary shares, subject to obtaining any required approvals for such ordinary share issuances under English law.
We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act's domestic reporting regime.
As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. public companies. We may no longer be a foreign private issuer when such status is assessed as of June 30, 2023 (the end of our second fiscal quarter), which would require us to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. public companies as of December 31, 2023. In order to maintain our current status as a foreign private issuer, either (a) a majority of our ordinary shares must be either directly or indirectly owned of record by non-residents of the U.S. or (b) (1) a majority of our executive officers or directors cannot be U.S. citizens or residents, (2) more than 50 percent of our assets must be located outside the U.S. and (3) our business must be administered principally outside the U.S. If we lose our status as a foreign private issuer, we would be required to comply with the reporting and other requirements of the Exchange Act as applicable to U.S. public companies, which are more detailed and extensive than the requirements for foreign private issuers. We may also be subject to more stringent corporate governance practices in accordance with various SEC regulations and rules. The regulatory and compliance costs under U.S. securities laws applicable to a U.S. public company can be significantly higher than the costs incurred by a foreign private issuer. As a result, a loss of foreign private issuer status could increase our legal and financial compliance costs and could make some activities more time consuming and costly.