Moody’s downgrades Kerling on poor Europe PVC market outlook

07 December 2012 20:01  [Source: ICIS news]

LONDON (ICIS)--Moody’s has downgraded its credit rating for polyvinyl chloride (PVC) and caustic soda firm Kerling because of a negative outlook for Europe’s cyclical PVC market, it said on Friday.

The European PVC market is under increasing pressure because of overcapacity amid limited prospects for recovery in construction end-user markets, especially in southern Europe, the credit ratings agency said.

"In addition to our ongoing negative outlook for Europe's PVC product market, today's rating action also reflects Kerling's inability to improve profitability and to achieve credit metrics that we consider to be appropriate for a B3 rating," Moody’s said.

Moody’s therefore downgraded Kerling from B3 to Caa1, the agency said. The rating affects debt securities of about €860m ($1.12bn).

Following Kerling's acquisition of Tessenderlo's European vinyl and chloralkali assets last year, the harsh trading environment continued to overwhelm the company's attempts to restore its credit metrics to appropriate levels, Moody's said.

Moody’s expects Kerling’s 2012 adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) to fall nearly 8.5% year on year to €175m, it said.

“This significant reduction in profitability reflects the depressed demand for PVC in Europe, ongoing customer de-stocking, and the company's inability to adequately pass through ethylene cost increases,” Moody’s said.

“Against this backdrop, Moody's does not expect a material near-term decrease in the company's financial leverage,” it added.

On the positive side, Moody’s noted Kerling's backward integration into ethylene and its feedstock agreements with strategic suppliers and partners, including Ineos.

Kerling is a leading PVC and caustic soda producer in Europe, with additional positions in salt, brine and sulphur chemicals. It was formed by Ineos Capital through a combination of the Hydro ASA polymers business acquired in 2009, Ineos Enterprises and Ineos ChlorVinyls, Moody’s said.

($1 = €0.77)


By: Stefan Baumgarten
+1 713 525 2653



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