28 June 2012 09:57 [Source: ICIS news]
SINGAPORE (ICIS)--Moody's Japan K K said on Thursday it has changed its credit ratings outlook for Sumitomo Chemical to negative from stable, citing the producer’s high level of capital expenditures and aggressive acquisitions.
Moody’s has a “Baa1” a long-term issuer rating for the Japanese chemical firm.
“The change in outlook reflects Moody's concerns that the reduction in the company's current high leverage may take longer than expected,” the ratings firm said in a statement.
Moody’s said that Sumitomo Chemical’s adjusted debt/capitalisation ratio in the year ended March 2012 was at 59.4%, slightly lower than the 62.1% in the previous year.
But the chemical firm’s full-year adjusted debt was 5.9 times its earnings before interest, tax, depreciation and amortisation (EBITDA), up from 5.3 times in the prior year, the ratings firm said.
“Moody's believes the company's next three-year plan starting in April 2013 will be crucial in managing leverage,” it said.
Sumitomo plans to cut its debt to below yen (Y) 900bn ($11.3bn) in a few years from Y1,053bn in end-March 2012 – an objective that Moody’s described as “challenging” and “difficult to implement under current economic conditions”.
“Debt reduction in the next few years is particularly important due to the longer-term impact on leverage from the company's announced Rabigh Phase II Project,” Moody’s said.
The expansion plan for its joint venture with Saudi Aramco would require a total investment of around $7bn (€5.6bn).
“The financial impact will not be felt for the next few years as operations are only expected to begin in the first half of 2016, it said.
“But, in the next three to four years, expected support for the project such as completion guarantees will negatively impact on the company's adjusted debt and therefore leverage,” the ratings firm said.
($1 = €0.80/ $1 = Y79.75)
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