Titan Chemicals ‘BB’ ratings on CreditWatch

Standard & Poor's Ratings Services has placed its “BB” corporate credit rating on Titan Chemicals Corp Bhd on CreditWatch with negative implications.

The ratings agency said the CreditWatch placement reflected Titan's weaker-than-expected financial performance for the six months ended June 2008 and the challenging outlook for the petrochemical and polymer industry.

“The company remains vulnerable to the inherent risks in the petrochemicals industry, with its profitability and cash flows sensitive to feedstock price movements and its ability to pass on higher input costs to its customers," said S&P credit analyst Andrew Wong.

In the first half of fiscal 2008, Titan's operating margin declined to 8% from 13% in fiscal 2007 as a result of higher raw material prices.

While cost pressures may have moderated due to the recent fall in crude prices, Titan is facing challenges on the demand side in the short to medium term from capacity additions for olefin and polyolefin manufacturing facilities in the Middle East and China and weakening demand for polymers as a result of the potential regional economic slowdown.

S&P said it planned capacity growth outpaced demand growth over 2009 and 2010, the industry could suffer a severe downturn.

“Credit market volatility may also affect Titan's ability to roll over its uncommitted short-term working capital lines with any renewal of these lines likely to result in higher funding costs and tighter lending covenants.

"This places downward pressure on Titan's liquidity and financial flexibility,” it said.

The company generated revenue of RM6.1 billion in fiscal 2007 and RM3.7 billion for the first six months of 2008

source : the star online