Formosa Plastics Corp.

The negative outlook reflects the downside risk that Formosa Plastic (FP) group's debt to EBITDA ratio could remain above 2x for a prolonged period. Slowing down demand due to market uncertainty, global capacity addition, the group's increasing capital expenditures particularly in the U.S., as well as its still high cash dividend payout ratio could all prevent the group from restoring its profitability and generating positive free cash flow in 2019-2020, in our view. We could lower the long-term rating on the core group members if the FP group could not moderately improve its profitability and keep its debt to EBITDA ratio above 2x constantly. This may happen when the market conditions did not improve due to a weaker regional and

...Reversal of the once favorable trend in the regional oil and chemical market is likely to continue in 2020. High market uncertainty and overall macro headwinds mostly due to trade tension between the U.S. and other countries, particularly China, will likely continue to constrain improvement in downstream demand and keep inventory in the oil & chemical industry value chain at a low level over the next one to two years. Global capacity expansion remains above our forecast. Global capacity expansions in the U.S. (shale gas based) and Asia (mainly naphtha based and coal-based chemicals in China and the Middle East) will continue in 2020, which could further pressure average selling prices and spreads for chemicals over the next two to three years. Market conditions could worsen if the expanded capacity for products such as ethylene, propylene, and paraxylene and their downstream derivatives cannot be consumed under weak global demand. Mega investment plan in the U.S. to weaken FP Group's financial...

Full Report