TEXT-S&P report on EMEA commodity firms

(The following statement was released by the ratings agency)

March 6 - Against the backdrop of a relatively upbeat operating performance outlook, access to funding, both for refinancing and expansionary M&A investments, has generally moved center stage in the commodity sectors following the dislocation in the credit markets, according to a recent report published by Standard & Poor's Ratings Services.

"European commodity industries enjoyed favorable conditions in 2007 due to record commodity prices and strong global demand, and we expect this to continue into 2008, notwithstanding an anticipated softening in the chemicals industry," said Standard & Poor's credit analyst Sophia Dedemadis.

"But there are concerns regarding the liquidity positions of a small proportion of speculative-grade issuers. Equally, a number of investment-grade credits will face more difficult conditions when refinancing given ongoing tightening in the credit markets."

The report, titled "Credit Squeeze Affects Liquidity At Some High-Yield EMEA Commodity Firms; Crimps Large M&A-Related Refinancings," considers liquidity risks and mitigants in the chemicals, metals and mining, and oil and gas sectors.

In chemicals, the vast majority of rated companies look set to maintain sufficient liquidity in 2008, but weakening demand and still-high raw material costs will put some issuers' cash management and covenant compliance under scrutiny from 2009 onward. This is expected to primarily affect lower-rated speculative-grade companies.

In metals and mining, meanwhile, ongoing largescale, debt-financed M&A--coupled with uncertain credit markets--has raised the prospect of a glut of industry risk exposure for banks, which may prove difficult to digest. This could constrain the execution of new deals and increase refinancing risks for transactions that have already closed, as well as increasing pressure on liquidity.

Fundamentally, however, most metals and mining companies' liquidity to meet short to medium term operational and refinancing needs is good, as still-favorable metals, minerals, and steel prices help generate healthy free cash flows.

In the oil and gas sector our primary focus with respect to potential liquidity concerns centers around speculative-grade issuers. But liquidity is unlikely to be a major issue for oil and gas players in 2008. Record oil and rising gas prices continue to underpin credit quality, despite moderate free cash flows as a result of soaring capital expenditures. In addition, should the current difficult borrowing climate persist, companies in emerging markets will engage more in secured commodity-based pre-export financing.

"Across the commodity sectors we will be closely monitoring the credit profiles of those speculative-grade companies with weak liquidity, as well as investment-grade companies with large, often M&A-related funding needs," Ms. Dedemadis added.