Moodys sees better profitability for S Korean LG Chem in 2015

MOSCOW (MRC) -- Moody's Investors Service says that LG Chem Ltd's weaker operating results for 2014 when compared with 2013 will not immediately impact its A3 issuer rating or stable rating outlook, as per Moody's.

"While LG Chem recorded a significant year-on-year fall in operating income in 2014, the company's prudent capital spending levels resulted in a stable financial profile," says Wan Hee Yoo, a Moody's Vice President and Senior Analyst. According to the company's announcement on 26 January 2015, LG Chem's unadjusted operating income fell 25% year-on-year to KRW1.31 trillion in 2014 from KRW1.74 trillion in 2013.

The decline in its reported EBITDA was less severe at 12% because depreciation charges grew during the same period. The decline in its earnings in 2014 was mainly due to the appreciation of the won, inventory losses stemming from the steep decline in crude oil prices, and weaker earnings from its non-chemical businesses.

Moody's points out that LG Chem's adjusted debt/EBITDA grew only marginally to 1.3x in 2014 from 1.2x in 2013 because of a fall in debt levels, which was owing to a containment in capital expenditure and working capital deficits.

Its adjusted net debt/EBITDA was much lower at 0.6x in 2014. This level of leverage is in line with its A3 rating, although it is at the weak end of the rating category. Moody's expects LG Chem's profitability to rebound moderately in 2015 in the absence of the one-off losses it incurred in 2014, provided that crude oil prices do not decline further and exchange rates remain stable.

The company's earnings should also benefit from continued capacity additions and increased sales of value-added products, as well as lower feedstock costs, the latter of which should be positive for its chemical product spreads.

These factors will mitigate the persistent downward pressure on the spreads of its commodity petrochemical products, which is driven by the slowing demand growth in China. Given these assumptions and Moody's expectation that LG Chem's capital expenditure and working capital consumption levels will be manageable in 2015, the company's adjusted debt/EBITDA should stay at about 1.2x over the next 12-18 months; which in turn is at a level similar to that in 2014.

LG Chem Ltd is a major Asian producer of a diverse mix of commodity and specialty chemicals including olefins, polyolefins, ABS, engineering plastics, acrylate, plasticizers, synthetic rubbers, PVC and specialty polymers. The company is also a global producer of LCD panel materials and rechargeable batteries. Its revenues totaled KRW22.6 trillion (USD21.4 billion) in 2014, with its chemical business accounting for about 76% of consolidated revenue during the same period. The company has 18 manufacturing locations in six countries.
MRC

MOSCOW (MRC) -- Sika has agreed to acquire the assets of Duro-Moza, a Mozambique based company active in production and sales of specialized mortars and tile adhesives, said the company in its press release.

The transaction will accelerate Sika Mozambique’s development and market penetration. Duro-Moza generated sales of CHF 2 million in 2014.

Duro-Moza has developed a comprehensive product range covering plasters, tile adhesives, dry shakes, grouting and concrete repairs. The company is located in the capital city of Maputo and has established a strong position in the promising market Mozambique.

Sika founded its own subsidiary in Mozambique in 2014. The acquisition will provide Sika Mozambique with an ideal start in the market, giving immediate access to its own production facility and to an established customer base in the fast growing construction sector.

Paul Schuler, Head of region EMEA: "This acquisition is the first acquisition in Africa and will provide us with a solid platform from which to expand further in the region. We welcome the new employees on board and look forward to developing the business together."

As MRC wrote before, Sika has recently entered into exclusive negotiations with Axson management and shareholders to acquire Axson Technologies, a leader in the field of epoxy and polyurethane polymer formulations for design, prototyping and tooling, structural adhesives, composite materials and encapsulation products for the automotive, nautical, renewable energy, sports & leisure and construction markets.

Sika is a specialty chemicals company with a leading position in the development and production of systems and products for bonding, sealing, damping, reinforcing and protecting in the building sector and the motor vehicle industry. Sika has subsidiaries in 90 countries around the world and manufactures in over 160 factories. Its more than 16,000 employees generated annual sales of CHF 5.6 billion in 2014.
MRC

MOSCOW (MRC) -- SIBUR Holding, a leading Russian gas processing and petrochemicals company, may slow some project spending as the Russian petrochemical producer seeks to curb risks from the economy amid US and European sanctions against the country, reported Bloomberg.

"This is to avoid risks for the company in 2016 and 2017 if the price and economic situation does not change," Chief Executive Officer Dmitry Konov said in an interview in Davos, Switzerland, without identifying any specific projects.

Russia, the largest oil and gas exporter, faces a recession this year as crude prices fell more than 50% in six months. The US and Europe also sanctioned people and companies after Russia annexed Crimea in Ukraine and supported a separatist insurgency in its neighbor. Billionaire Gennady Timchenko, who owns more than 15% of SIBUR, is among those sanctioned.

While SIBUR isn't on any sanctions list, it doesn’t have any borrowing plans as wider debt costs have risen, Konov said.

"Due to the economic situation and existing sanctions against a number of Russian companies and banks, public debt sales for any Russian company will be extremely expensive if possible at all," he said.

Even if annual spending falls, SIBUR expects higher output in its crude and petrochemicals operations as recently completed projects expand capacity, Konov said.

As MRC informed previously, in May 2014, SIBUR signed a contract with China Petroleum and Chemical Corporation (or "Sinopec") to establish a joint venture for the construction of a 50,000 tpa butadiene nitrile rubber (or "NBR") plant at the Shanghai Chemical Industry Park, 50km south of Shanghai. Sinopec’s share in the joint venture will be 74.9% and SIBUR’s will be 25.1%.

SIBUR is a uniquely positioned vertically integrated gas processing and petrochemicals company. We own and operate Russia’s largest gas processing business in terms of associated petroleum gas processing volumes and are a leader in the Russian petrochemicals industry. As of 31 March 2014, SIBUR operated 27 production sites located all over Russia, had over 1,400 large customers engaged in the energy, chemical, fast moving consumer goods (FMCG), automotive, construction and other industries in approximately 70 countries worldwide and employed over 27,000 personnel.
MRC

MOSCOW (MRC) -- Polypropylene (PP) prices in Turkmenistan fell by USD400/tonne in the export trades, on 26 January, according to ICIS-MRC Price report.

Market sources said PP prices remained at USD1,200/tonne FCA in the export trades in Turkmenistan for a long time, while demand for polymer was absent. On Monday trades, participants managed to get a reduction in export prices to USD800/tonne FCA.

Almost 15,000 tonnes of PP were sold out at the trades. The CIS companies accounted for the bulk of purchasing.
MRC

MOSCOW (MRC) - Total imports of polycarbonate (PC) into Russia was about 35,000 tonnes in 2014, down 8% year on year, according MRC DataScope report.

The greatest reduction of Russia's PC granules imports has occurred for injection moulding sector. Demand for imported injection moulding PC granules fell to 6,000 tonnes in 2014, down 36% compared with the level in 2013. Russia's imports for bottle grade PC decreased to 2,600 tonnes in 2014, down 23% year on year. This sector is entirely dependent on imports.

At the same time, amid a general reduction in Russia's PC imports in 2014, external supply of PC for sheet extrusion in the country increased by 4% to 26,300 tonnes in 2014. One of the main reasons for the weakening PC imports in the country was the rouble devaluation, weaker buying activity and the deterioration of macroeconomic indicators in general.

Despite a steady downtrend in oil and its derivatives prices, polycarbonate prices had been increasing over the last year. PC converters have faced with the unwillingness of consumers to accept the increase in final product prices. Because of this the margins in the industry declined significantly.

In addition, prices for Asian PC significantly increased on the strengthening of the dollar in the world markets. Previously, Asian PC was more affordable alternative to the European material, but now the situation has changed.

Some converters, who can not diversify their procurement, suffer losses or even had to suspend production. At the same time, the only producer of PC granules in the CIS countries, Kazanorgsintez (KOS), during the reporting period followed the policy of import substitution, trying to satisfy domestic demand.

Thus, converters received an alternative to the imported material in a more acceptable price range. PC prices are expected to increase this year further in Russia. Now the level of PC prices is dictated largely by the exchange rate than the season factor or buying activity. Traders and converters will try to diversify their procurement of feedstock, preferring the Russian material.


MRC