Standard & Poor's said earlier this month that the company has begun to take a more cautious view of the chemical industry's development prospects due to factors such as slower GDP growth expectations, weak housing market and high oil prices. As of now, the number of chemical companies with a reduced credit rating this year has exceeded the number of higher levels, and this situation will continue in the rest of 2007 and in 2008.
It is alleged that business acquisitions and the increase in return to shareholders are the main factors causing the lowering of the credit rating of chemical companies. On the other hand, the extension of the chemical industry cycle will promote the chemical company's credit rating. Standard & Poor's analysts said: "In recent years, the profitability of chemical companies has maintained a good momentum, but the quality of credit has declined year after year." Of the 75 chemical companies rated by Standard & Poor's, 68% were rated as " Speculation level, and the number of companies rated as "investment grade" has been reduced from 27 in June 2006 to the current 24.
Standard & Poor's believes that the main reason for the decline in credit rating is that these companies' financial policies are too risky. The most outstanding are the Rohm and Haas and PPG Industries. After Rohm and Haas announced its $1 billion accelerating stock repurchase program in July, Standard & Poor's downgraded the company's credit rating; PPG Industries announced a $3 billion acquisition of SigmaKalon Group's plan earlier this year. It was also listed on the negative credit watch list. Standard & Poor's said that the debt assumed by PPG’s acquisition transaction will significantly worsen the company’s financial status. In addition, Basel and Leonard Chemicals are also listed on the negative credit watch list because Basel plans to acquire Lionel for $12.7 billion.
At the same time, Standard & Poor's is more optimistic about the prospects of professional chemical companies and diversified chemical companies. As of now, the agency has raised its credit ratings for Airgas, Hercules and OM Group this year. Standard & Poor's credits this to the continuous improvement of the financial status of these companies.
Analysts believe that the credit crisis that started in July may slow down the progress of M&A activities in the chemical industry. Standard & Poor's said that this slowdown in mergers and acquisitions will affect private equity companies to a greater extent, because these companies have played a significant role in this year's chemical mergers and acquisitions. If private equity firms slow down the pace of mergers and acquisitions, there may be growth in strategic investors, mergers and acquisitions between chemical giants such as Dow Chemical and DuPont.
It is alleged that business acquisitions and the increase in return to shareholders are the main factors causing the lowering of the credit rating of chemical companies. On the other hand, the extension of the chemical industry cycle will promote the chemical company's credit rating. Standard & Poor's analysts said: "In recent years, the profitability of chemical companies has maintained a good momentum, but the quality of credit has declined year after year." Of the 75 chemical companies rated by Standard & Poor's, 68% were rated as " Speculation level, and the number of companies rated as "investment grade" has been reduced from 27 in June 2006 to the current 24.
Standard & Poor's believes that the main reason for the decline in credit rating is that these companies' financial policies are too risky. The most outstanding are the Rohm and Haas and PPG Industries. After Rohm and Haas announced its $1 billion accelerating stock repurchase program in July, Standard & Poor's downgraded the company's credit rating; PPG Industries announced a $3 billion acquisition of SigmaKalon Group's plan earlier this year. It was also listed on the negative credit watch list. Standard & Poor's said that the debt assumed by PPG’s acquisition transaction will significantly worsen the company’s financial status. In addition, Basel and Leonard Chemicals are also listed on the negative credit watch list because Basel plans to acquire Lionel for $12.7 billion.
At the same time, Standard & Poor's is more optimistic about the prospects of professional chemical companies and diversified chemical companies. As of now, the agency has raised its credit ratings for Airgas, Hercules and OM Group this year. Standard & Poor's credits this to the continuous improvement of the financial status of these companies.
Analysts believe that the credit crisis that started in July may slow down the progress of M&A activities in the chemical industry. Standard & Poor's said that this slowdown in mergers and acquisitions will affect private equity companies to a greater extent, because these companies have played a significant role in this year's chemical mergers and acquisitions. If private equity firms slow down the pace of mergers and acquisitions, there may be growth in strategic investors, mergers and acquisitions between chemical giants such as Dow Chemical and DuPont.