SABIC – S&P follow Moody’s

S&P have quickly followed Moody’s in putting SABIC Innovative Plastics’ debt on creditwatch for a downgrade. As I commented with the Moody’s downgrade, this is not really to do with a newly discovered decline in the polycarbonate market. S&P have very competent chemical analysts, and must have been aware in August (when the original grade was announced), that Q3 was turning out to be a tough quarter, and that future profits were likely to slow.

Again, ICIS news have done a good job uncovering this story during the quiet holiday period. Most revealing is the comment from S&P analyst, Tobias Mack that ‘We expect that SABIC will likely have to offer some parental support in 2008 to protect its subsidiary SABIC Innovative Plastics from a distress scenario’.

SABIC is one of the strongest chemical companies around. In making this demand, S&P are clearly preparing the ground to put major pressure on less well-supported companies with high leverage. They are also signalling that life will be quite difficult for those still trying to finance deals completed towards the end of 2007.

My conversations over the holiday period suggested that lenders’ lawyers are already busy examining the fine print of loan agreements, even those supposedly ‘cov-lite’ with few covenants to enforce performance. Finance directors don’t want to be caught unaware, if a major downgrade is likely. They need to ensure their sales and purchasing teams are monitoring credit conditions at their customers and suppliers very closely.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

, , , ,

Leave a Reply