S&P views four Formosa companies negatively

S&P said it revised the outlooks for Formosa Plastics Corp., Nan Ya Plastics Corp., Formosa Chemicals & Fibre Corp., and Formosa Petrochemical Corp. to negative from stable. The agency also affirmed the BBB+ long-term issuer credit ratings on the companies, as well as the BBB+ long-term issue ratings on their unsecured common corporate bonds and the bonds that Formosa Group (Cayman) Ltd. issued and proportionally guaranteed by the four companies.

“A weak global economy, aggressive capacity additions, and competition from imports of gas-based chemicals will weaken the profitability of the chemical business for the four Formosa Plastics companies beyond our previous forecast. Demand in the chemical sector remains subdued and prices are sluggish amid muted economic growth and exports in China. In addition, further capacity additions will limit the sector's turnaround, although restocking and high seasonal demand have stabilized the sector for now,” the agency said in a press release.

S&P said the weaker outlook reflects the view that the companies may not be able to lower their ratios of debt to EBITDA close to 2x over the next 24 months.

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