Four Formosa Companies--Formosa Plastics Corp., Nan Ya Plastics Corp., Formosa Chemicals&Fibre Corp., and Formosa Petrochemical Corp.

The stable rating outlook reflects our view that the four companies' strong operating cash flow and delayed spending will enable them to maintain lower debt with a ratio of debt to EBITDA below 1x on a pro forma consolidated basis in 2021-2022 before rising moderately in 2023. We anticipate the companies' lower leverage even though profitability could moderate from the likely high level in full year 2021. Our base case assumptions also factor in capex in 2023 for the planned Louisiana project. However, a delay in the project could reduce the four companies' leverage below our current projection and provide an additional financial buffer for the ratings. We could lower the long-term rating on the four companies if the consolidated

...Strong free operating cash flow and a reduced debt guarantee have lowered the four Formosa companies' aggregate debt leverage significantly beyond our previous expectation for 2021-2023. The four Formosa companies--Formosa Plastics Corp., Nan Ya Plastics Corp., Formosa Chemicals & Fibre Corp., and Formosa Petrochemical Corp.--could lower their debt by more than we previously assumed for the next two years because of strong cash flow generation, the prolonged suspension of the companies' U.S.-based chemical complex project, and faster reduction in their guarantee on a Vietnam steel mill. This will increase the financial buffer of the four companies against industry volatility and the likely resumption of their expansion plans in the U.S. We forecast the four companies' combined ratio of debt to EBITDA will stay below 1.0x in 2021-2022 and below 1.5x in 2023 even if the companies decide to go ahead with the project in the U.S. Profitability is likely to moderate in 2022 and 2023 from a high...

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