More chemical mergers in the offing - Moody's

09 February 1998 08:00  [Source: ICIS news]

SINGAPORE (CNI)--The Asian crisis may prompt more strategic mergers in the chemicals industry - and sound opportunities for western companies, according to US rating agency Moody's Investors Service Tuesday.

Moody's vice president and senior credit officer, Joseph Princiotta, said the industry, already weakened by oversupply concerns, faces increased price pressures due to flooded markets and lower demand in Asia.

Depreciated currencies have increased Asian chemical firms' need for US dollars to make interest payments and buy feedstocks.

The result: many Asian chemical firms are flooding regional markets, driving down chemical prices to what Princiotta described as "irrational levels, since the need for dollars in some cases outweighs profit and return motives."

Those factors encourage strategic alliances such as mergers - in which European and US companies might find profitable roles.

Princiotta said increased competition from Asian plants and new export-oriented capacity in the Middle East could underscore European and US competitive disadvantages in commodity chemicals.

Moreover, Asian demand, which is 25-30% of global demand for most chemicals, will deepen the pricing and profit declines in commodity chemicals.

He added that as Asian companies postpone or cancel building plans, international firms may see opportunities in favourable asset pricing resulting from weaker currencies.

This, he said, may facilitate foreign acquisition of companies or projects, more joint ventures, and the takeover of troubled chemical subsidiaries of Asian conglomerates.

"This trend would benefit the industry because acquisitions provide a growth vehicle without additional grassroots plants," added Princiotta.

By: Leslie Chua
+65 6780 4359

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