23 May 2013 09:06 [Source: ICIS news]
SINGAPORE (ICIS)--Moody’s on Thursday downgraded Japanese producer Sumitomo Chemical’s long-term issuer rating to “Baa2” from “Baa1” following its recent announcement of restructuring measures, but kept its rating outlook stable.
“The downgrade reflects Moody's concerns that a reduction in the company's current high leverage may take longer than previously expected,” the firm said in a statement.
The company in February this year announced a business plan that is partly aimed at reducing its total debt to below yen (Y) 900bn ($8.7bn) by the end of its 2015 fiscal year, according to Moody’s
The firm aims to achieve this by setting the limit for investment cash flows at Y400bn over the next three years, it said.
“It is unlikely that Sumitomo Chemical's earnings and cash flows will recover strongly enough within the next two fiscal years, to reduce leverage to a level that supports a Baa1 rating,” it said.
The stable outlook reflects Moody’s view that current restructuring measures should improve the company's cost structure. This is expected to improve its earnings and cash flow to some extent.
Sumitomo Chemical's profitability over the last two fiscal years has been severely weighed by the weak global economy, a sharp decline in Asian and overseas demand, a strong Yen as well as margin erosion.
“Moody's notes that a recovery will need to include better returns from two major segments, basic chemicals and petrochemicals,” the ratings firm said.
“These two segments together accounted for more than 49% of consolidated sales, but the earnings have been weak in the past two years and are expected to remain very weak even in fiscal year 2013,” it added.
An upgrade to Sumitomo Chemical’s ratings is unlikely in the near term, according to Moody’s.
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