Moody's assigns Ciech's international bond a provisional rating

16 November 2012 16:01  [Source: ICIS news]

LONDON (ICIS)--Moody's Investors Service has assigned a provisional (P)B2 rating to the first ever international bond issue of Polish chemical group Ciech, a €225m ($288.5m) issue of senior secured notes, the ratings agency said on Friday.

The provisional rating was provided pending the completion of a refinancing transaction, along with a (P)B2 corporate family rating (CFR) and probability of default rating (PDR) to Ciech, Moody's added.

The outlook for all the ratings was 'Stable', it said.

Ciech, through special purpose vehicle Ciech Group Financing, is issuing the notes, together with zlotych (Zl) 382m ($117.2m, €91.8m) of Polish notes and a Zl 100m revolving credit facility, to refinance its existing indebtedness as part of a widened restructuring of its operations.

Moody's said its rating “factors in Ciech's solid position as the largest regional producer of soda ash in central Europe with production facilities in Poland, Germany and Romania”.

In a statement on the rating, it added: “Moody's positively notes Ciech's low-cost production capabilities, as well as the improved energy efficiency at the company's Polish facilities, following recent investments.

"The company's competitive position is supported by established supply relationships with leading glass producers in the region and high transportation costs, relative to the cost of production, which mitigate competitive pressures from foreign suppliers and support solid operating margins.”

However, the rating also recognised the risks associated with Ciech's ongoing divestment programme of sizeable non-core businesses that have significantly weaker operating and credit characteristics, and Ciech's exposure to cyclical end markets such as construction, Moody's said.

“Finally, the rating reflects the elevated leverage and moderate historical operating cash flows although balanced by the expectation that Ciech will continue to focus on debt reduction and improving cash flow generation,” it added.

Ciech operates two soda ash and baking soda production facilities located in Poland, one in Germany and one in Romania, making it the second-largest producer of soda ash in Europe by capacity, after Belgium-based Solvay.

Soda ash transportation costs can be substantial and customers and suppliers are typically located in close proximity to ensure cost-efficient production, thereby also providing some barriers to competitors looking to enter the soda ash production sector, Moody's noted.

The ratings agency added in its statement: “The soda ash market has seen some consolidation and recovered following a downturn in 2009-10. It is expected to remain on a modest growth trajectory - more so in central Europe.

"The market balance, however, remains sensitive to additional supply from lower-cost Turkish producers that run trona-based production processes. The rating assumes limited, if any, near-term pressure on Ciech.”

In the 12 months to September of this year, Ciech generated revenues and normalised earnings before interest, tax, depreciation and amortisation (EBITDA) of Zl 4.4bn and Zl 409m, respectively, Moody's said.

($1 = Zl 3.26, €1 = Zl 4.16, $1 = €0.78)

By: Will Conroy
+44 20 8652 3214

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