Chems less robust ahead of latest downturn - S&P

22 October 2008 15:47 [Source: ICIS news]

LONDON (ICIS news)--Europe and the Middle East’s chemicals producers are less well equipped to deal with the global economic downturn than they were before the previous trough, Standard and Poor’s said on Wednesday.

The ratings service said that a third of companies it covered were in the ‘B’ category, meaning business prospects were not very robust to deal with a severe downturn.

One fifth of companies covered were on a negative credit outlook, including LyondellBasell, INEOS, Akzo Nobel and BASF which was downgraded after it announced it would acquire Ciba.

“In 2000 in Europe, [the chemicals industry] looked very good, we had an average rating of BBB+, but in 2007 an average rating of BB shows you we are at a different stage,” said credit analyst Tobias Mock.

“We only had one default in Europe in the last downturn, but now we would expect defaults to rise in this downcycle,” he added.

Agrochemicals companies were expected to perform best in the downcycle, while commodity chemicals producers, facing oversupply and weaker pricing power, would be hit the hardest.

S&P said it expected producers to adopt more conservative financial policies in the downcycle, moving away from the aggressive debt financing of 2006-07 and from large share buybacks, but maintaining a stable dividend policy.

Mock was speaking at S&P’s Oil, Gas, Metals, Mining and Chemicals seminar at the company’s headquarters in London.

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By: Mark Watts
+44 20 8652 3214

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