TEXT-Fitch affirms major diversified chemical cos
June 25 - Fitch Ratings has affirmed the ratings of three major diversified chemical companies: BASF SE (BASF), Royal DSM N.V. (DSM) and Akzo Nobel N.V. (Akzo Nobel). A full list of rating actions is at the end of this release. The affirmations follow an industry review, which included an analysis of each company's forecast operational and financial profile over 2012-2014. Fitch's base rating cases project low single digit revenue growth and some margin erosion yoy in 2012 on the back of sustained cost inflation and lower volumes. The latter reflect the weaker global macro economic environment with quasi-absent growth prospects in Europe and softer demand from emerging markets. The rating differentials are driven by the issuers' relative operational strengths and portfolios diversification, which in turn underpin their respective resilience to down-cycles, cash flow generation capacity and financial profiles. The rating affirmations and Stable Outlooks reflect Fitch's view that the companies' credit metrics offer sufficient headroom under their respective ratings to meet their funding requirements and face the weaker market conditions. Akzo Nobel faces higher downside risk than its peers as industry-wide challenges are compounded by high exposure to weak housing and construction end-markets and unabating cost pressure from Titanium dioxide prices in its Decorative Paints segment (34% of 2011 sales). Akzo Nobel's financial flexibility and funds from operations (FFO)-based metrics remain constrained by its large pension-related payments. Its ability to maintain sufficient headroom under the rating is partly contingent on the success of its restructuring plan. The group's performance improvement programme aims at delivering EBITDA of EUR500m by 2014, with associated incidental costs of EUR425m. Projected costs and benefit for 2012 are estimated at EUR200m. Fitch's rating case only factors in part of these gains. Company-specific developments, such as the resumption of BASF's Lybian oil operations (October 2011), DSM's announced acquisitions in the nutrition and bio-medical fields, or contributions from Akzo's bolt-on acquisitions will help offset weaker underlying volume trends in their more cyclical divisions. Fitch's forecasts incorporate historically high capex expenditure continuing over the next three to four years, and moderate increases in dividends. Liquidity and capital market access remain strong for all companies. The rating actions are as follows: BASF: Long-term Issuer Default Rating (IDR) affirmed at 'A+'; Outlook Stable Senior unsecured rating affirmed at 'A+' Short-term IDR affirmed at 'F1' CIBA Speciality Chemicals Holdings Inc. (consolidated under BASF): Senior unsecured rating on outstanding bonds affirmed at 'A+' DSM: Long-term IDR affirmed at 'A-'; Outlook Stable Senior unsecured rating affirmed at 'A-' Short-term IDR affirmed at 'F2' Akzo Nobel: Long-term IDR affirmed at 'BBB+'; Outlook Stable Senior unsecured rating affirmed at 'BBB+'
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