Rhodia's acid test

www.breakingviews.com

French chemicals company Rhodia is facing a liquidity crunch. Under a deal struck with its banks last December, it needs to raise e300 million in a rights issue by May 15 to access a new loan. Its finances have worsened since then. It has paid e295 million to bondholders threatening to tip it into default. And its access to credit backed by uncollected invoices has reduced, forcing up the debt held on its balance sheet by more than e200 million last year.

It now looks as though Rhodia will have to raise rather more than e300 million to keep the wolves from its door. The group has acknowledged that this is the case, but denies it will need as much as e600 million. But just look at its available liquidity and the likely drains on it. The company has e766 million in cash and marketable...