(The following statement was released by the rating agency)
July 25 -
Summary analysis -- Solvay S.A. ----------------------------------- 25-Jul-2012
CREDIT RATING: BBB+/Negative/A-2 Country: Belgium
Primary SIC: Chemical
Mult. CUSIP6: 834437
Credit Rating History:
Local currency Foreign currency
07-Sep-2011 BBB+/A-2 BBB+/A-2
24-Aug-2010 A-/A-2 A-/A-2
The ratings on Belgium-based chemical group Solvay S.A. reflect Standard & Poor's Ratings Services' view of its "satisfactory" business risk profile and its "intermediate" financial risk.
We assess the group's business risk profile in the high end of the satisfactory category. We take into account Solvay's leading global positions in mature commodity product lines, such as soda ash, hydrogen peroxide, caustic soda, and a broad range of specialty polymers, and, following the Rhodia acquisition, the group's heightened presence in high-growth countries (in Asia and Latin America), and its reduced cyclicality. In our opinion, the group's profitability is favorable, given its high generation of EBITDA after maintenance capital expenditures (capex) throughout the industry cycles. Solvay benefits from its large-scale, vertically integrated plants and its focus on energy efficiency and cost reductions. Pressure points include substantial multiyear capex programs to increase capacity and cost efficiency, and its exposure to industry cyclicality and GDP swings for commodity and specialty chemicals.
We qualify Solvay's financial risk profile as intermediate, owing to its fairly prudent financial policy, strong liquidity, and our expectation that its credit metrics will improve to levels that we would consider commensurate with the rating by year-end 2013. We view an adjusted ratio of funds from operations (FFO) to debt of at least 35%, with our assumption of a midcycle EBITDA of about EUR1.8 billion, as commensurate with the rating. Negative factors include the cyclicality of the group's operating cash flows, anticipated large capex, which would lead to moderate free operating cash flow (FOCF) until at least 2013 under our base-case scenario, and high debt adjustments, notably for pensions.