Moody's upgrades Ineos' credit ratings on good performance

27 June 2003 11:01  [Source: ICIS news]

LONDON (CNI)--Moody's has upgraded the credit ratings of UK-headquartered specialty chemicals Ineos, citing as the main reason its continuous good performance despite difficult economic conditions.

The upgrade affected approximately Euro1.1bn ($1.3bn) of the firm’s debt securities. The senior notes rating was raised to B1 from B2 while both the senior implied rating and the senior secured credit facilities rating were upgraded to Ba2 from Ba3. The outlook is stable.

Moody’s noted Ineos’ asset quality and its relative low cost position as well as very high capacity utilisation rates for products such as ethylene glycol (EG) and hydrofluorocarbons (HFCs).

The rating agency also believed that Ineos will continue to pursue its growth strategy based on low-cost de-bottlenecking  and modest bolt-on acquisitions. No major acquisition or any significant capacity expansion is likely to happen and prevent Ineos from pursuing its “solid” de-leveraging, said Moody's.

Furthermore, the revision of the group's financial covenants for the year 2003-04 will lead to more financial 'headroom', said Moody’s.

Although the business outlook for chemical companies is generally uncertain, Moody’s viewed the outlook for certain Ineos products such as ethylene oxide (EO) and EG as rather positive for the next 12 to 18 months with a limited number of new additional capacity, plants shutdowns and growing end-user demand.

The long-term swap arrangement Ineos Oxide entered into with Dow in 2001 provided Ineos with a fixed EO/EG conversion fee and cash flow stability for about 60% of Ineos Oxide's EG volumes, said Moody’s.

Ethylene, the main EO and EG feedstock, is in structural oversupply, leading Moody's to believe that earnings before interest, tax and depreciation (EBITDA) in Ineos Oxide is likely to be up again in 2003.

Moody's noted the Ineos' phenol division will benefit from the recent shutdowns that have been implemented by smaller players in the US market.

The fact that 50% of Ineos Phenol’s European operations consist of toll contracts also limits cash flow volatility, it said.

Moody’s said it anticipated a reduction in volume growth next year at Ineos Fluor and believed the division's strategy will be focused on consolidating its recently increased market share in an uncertain pricing environment.

The ratings agency also acknowledged Ineos' participation in the UK Emissions Trading Scheme (ETS) where participants can trade and sell their excess reduction of carbon dioxide (CO2) emission levels.

Moody’s also believed the silicas business will benefit from additional capacity coming onstream in the summer (Q3) of 2003 to  satisfy high customer demand in the private label detergent market.

By: Russell Ong
+44 208 652 3214

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