SPCM S.A.

The stable outlook on SPCM, the holding company of specialty chemicals producer SNF group, signifies that we expect SPCM's operating performance to remain strong in 2019-2020. We forecast that its S&P Global Ratings-adjusted FFO-to-debt ratio will improve toward 30% over that period, well within the 20%-30% range we consider commensurate with our 'BB+' rating. We understand that SPCM plans to reinvest all cash flows into business growth, generating neutral to negative FOCF in the coming years. However, we recognize the modular nature of the company's capex and management's willingness and ability to monitor investment spending in less-supportive business conditions. We could lower the rating if SPCM's FFO-to-debt ratio weakened to 20% or lower without clear prospects for recovery. This could

...SNF Group (SPCM) has outperformed expectations in 2018 and year-to-date 2019, largely because of strong growth in oil and gas operations as oil prices recovered from 2016 lows. Revenue from oil and gas operations increased almost twofold to about 850 million in 2018, on the back of higher volume growth in the U.S. and Asia. Other business segments also continued to record positive growth, supporting overall SNF performance. Total EBITDA reached 391 million in 2018 (up 21% from 2017), well above S&P Global Ratings' previous forecast. We expect it to reach 490 million in 2019. Margins are expected to normalize in the near future, following its peak in 2015-2016. A significant proportion of SPCM's revenue is covered by pricing agreements that, to some extent, offer a pass-through mechanism for any input price fluctuations and help keep margins stable. We primarily attribute the spike in margins in 2015-2016 to the sharp fall in oil prices, which drove down key input prices such as acrylonitrile...

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