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Fitch Publishes 'BBB' Syngenta Rating, Outlook Stable
2017年5月19日 / 下午12点59分 / 5 个月前

Fitch Publishes 'BBB' Syngenta Rating, Outlook Stable

(The following statement was released by the rating agency) LONDON, May 19 (Fitch) Fitch Ratings has published a 'BBB' Foreign-Currency Long-Term Issuer Default Rating on Syngenta AG following its takeover by China National Chemical Corporation (ChemChina; A-/Stable). At the same time, Fitch has published a Foreign-Currency Short-Term Issuer Default Rating on the company of 'F3' and a senior unsecured long-term rating of 'BBB'. A full list of rating actions is at the end of this commentary. The 'BBB' rating reflects Syngenta's high initial leverage of over 5x FFO adjusted net leverage, which Fitch forecasts to fall to around 4x by 2020. This leverage is in line with a sub-investment-grade financial profile, but the rating is supported by Syngenta's strong business profile as a market-leading agro-chemical business and includes one notch of uplift to reflect support from ChemChina, with which we consider there to be a moderate linkage overall. The 'F3' on Syngenta's short-term ratings is driven by the short-term refinancing need of the acquisition debt. We believe that maintaining a high dividend payout will constrain the group's deleveraging capacity, especially in the context of a lacklustre industry environment, where FFO growth alone is unlikely to deliver the needed debt reduction. In our view, dividend flexibility will therefore be imperative to achieve a leverage profile consistent with an investment grade rating by 2020. The consolidation within the agrochemicals industry will bring with it opportunities to add to companies' portfolios and the need for companies to defend their existing market positions. Fitch does not see much headroom for further M&A under Syngenta's current rating and any significant M&A that could harm the deleveraging of Syngenta to expected levels would be likely to have a negative impact on the rating. KEY RATING DRIVERS High Post-Transaction Leverage: ChemChina has announced closure of its takeover of Syngenta for USD44 billion (a USD465 all-cash offer) with all regulatory approvals in place and all conditions for closing satisfied, including minor divestments. The final financing structure comprises USD37.5 billion of equity and debt raised in the ChemChina recourse group as well as existing ChemChina financial resources, and USD6.5 billion of debt raised at the Syngenta recourse group. In total, this has led to an increase of over USD7.2 billion of debt, including transaction related cash outflows, at Syngenta and CNAC Saturn (NL) BV (bidco) pushing FFO adjusted net leverage well over 5x at FY17 and in line with a sub-investment grade company, forecast to decrease to below 4x from 2020. The strong internal cash generation and stability of cash flows, and potential flexibility through adjusting dividend payments mean we believe these ratios, when considered with the strong business profile would be consistent with an investment-grade rating. Failure to deleverage in line with Fitch's expectations would be likely to result in negative rating action. One-Notch Parental Support: On closing, Syngenta will be 100% owned by ChemChina, itself 100% owned by the Chinese state (A+/Stable). We consider there to be a moderate linkage between Syngenta and ChemChina, and apply a one-notch uplift to the standalone rating of Syngenta for parental support, which is included in the IDR. Legal ties will be weak, with no guarantees or cross-default arrangements between the entities. Operational overlaps and integration potential will also be limited. However, there will be indirect advantages in the Chinese market given ChemChina's strong relationships with the Ministry of Agriculture and other state vehicles. This includes a RMB3.5 billion annual R&D capital allocation over five years from Chinese state finance vehicle SASAC to help ChemChina's balance sheet and business integration, which will ease pressure on Syngenta's dividend. The size of the acquisition and Syngenta's high profitability mean it will be a major contributor to group earnings, at around 35% of EBITDA. Strategic Importance for ChemChina: The acquisition is important to the aims of ChemChina, increasing its high-technology and R&D content, moving the product mix of the group towards the more strategically important agriculture sector, and increasing the group's international presence. The acquisition also serves some of the aims of ChemChina's ultimate shareholder, the Chinese state, of improving food security and agricultural productivity, and reducing the environmental damage from current Chinese farming practices. We believe ChemChina's ownership will result in revenue growth in the Chinese market, but we do not consider the gains to be material to the performance of the group over the rating horizon due to the large lead times involved in the industry. Short-Term Refinancing Need: Syngenta intends to refinance the short-term acquisition loan at its bidco (CNAC Saturn (NL) BV) within the next 12 months with long-term capital-market debt either at Syngenta AG or at CNAC Saturn (NL) BV. This short term refinancing need drives the 'F3' rating on Syngenta's short term ratings. Fitch expects there to be appetite for the refinancing of the acquisition facilities and the immediate financing need to be replaced with longer-term financing. An inability to refinance and push maturities into the future may result in negative rating action. Fitch has assigned the same IDR to both Syngenta AG and its bidco due to the existence of a cross-default clause on both entities' debt, share pledges from CNAC Saturn (NL) BV over its sole holding Syngenta AG and an intention for Syngenta AG to guarantee the bidco debt, unless refinancing occurs at Syngenta AG, once 100% of all shares have been acquired. Any change to these arrangements may affect the structural subordination of the bidco and therefore the rating. Strong Business Profile: Syngenta's scale of operations and sales, its product and geographical diversity, and its market leading positions within the crop protection and seeds market, places its operational profile within the 'A' category for speciality chemical companies. In the medium term we expect the ChemChina acquisition to be a catalyst for growth of Syngenta's product reach within China, but pressure on the business profile may come in the form of the considerable market consolidation within the agro-chemical segment. The company's R&D-driven expertise on crop biology and chemistry has cemented its brand and global reach within a market that is dominated by key agro-chemical companies due to high patent protection (around 40% of Syngenta sales) and cross-licencing arrangements, which provide a barrier of entry into the industry for other companies. Long-term demand fundamentals within the agro-chemical industry are strong due to the world's increasing population, changing dietary requirements and reducing arable land, meaning demand for crop protection products and seeds is likely to remain robust to meet global food needs and to help crop yields. Earnings Pressure to Ease: Sales and EBITDA decreased by around 5% in 2016 due to the non-recurrence of a one-off corn trait royalty in 2015, a change in Brazil sales terms, continued currency challenges and higher general and administrative unallocated costs. Leverage has as a result remained at a high 1.9x in 2016. However, over the rating horizon Fitch expects earnings to improve slightly due to upcoming product launches, minor synergies and sales opportunities from the ChemChina acquisition and less expected volatility from currencies, slowly improving crop prices and improving market conditions. Regulatory, Currency, Working-Capital Challenges: The nature of Syngenta's operations means it is fairly exposed to emerging markets FX volatility, regulatory changes on approvals of products and working-capital swings due to seasonality and weather patterns. Syngenta's large exposure to Latin America and other emerging markets has meant that reported earnings have been affected by large devaluations in the Brazilian real, Ukrainian hryvnia and Russian rouble. Fitch considers this volatility as a negative credit factor, but it this is partially offset by Syngenta's broad geographical diversification. DERIVATION SUMMARY Syngenta's key competitors are dedicated agribusinesses or large chemical companies based in Western Europe and North America and comprise BASF, Bayer, Dow, DuPont and Monsanto. Syngenta and these top companies account for over 60% of the worldwide market for crop protection and seeds products. Market pressures and the need to achieve a high level of research and development capability, particularly with the advent of biotechnology, have led to consolidation. A new wave of M&A may also mean that the core six agrochemical companies become the core four, with Dow merging its agrochemicals with Dupont and with Bayer looking to merge with Monsanto. Assuming no required material divestments, this could push Syngenta's market position to number two for crop protection products. Syngenta's margins have historically been lower than peers due to its focus predominantly on crop protection versus seeds and its large emerging-market and FX exposure. The post-ChemChina acquisition capital structure means Syngenta will be highly leveraged compared with its peers and other investment-grade specialist chemical peers. The post-transaction leverage and forecast leverage over the rating horizon is more in line with a 'BB' financial profile, whereas the business profile is forecast to remain in the 'A' range. These factors, and parental uplift and weak-to-moderate strategic ties to higher-rated ChemChina drive an overall 'BBB' rating profile. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - additional debt of over USD7.2 billion placed at Syngenta following the completion of the transaction, including special dividend and cash settlement of the employee equity plan costs, - low-single-digit revenue growth over the rating horizon as moderate price and volume increases offset currency challenges, - annual capex constant at 4.5% of sales over the rating horizon, - dividends at 60% of net income over the rating horizon, - USD500 million of cash restricted for intra-year working capital requirements and USD150 million in relation to insurance captive cash. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to a Positive Rating Action - Material deleveraging, resulting in FFO adjusted net leverage sustainably below 3x - Evidence of a strengthening in the relationship between Syngenta and ChemChina Future Developments That May, Individually or Collectively, Lead to a Negative Rating Action - Failure to deleverage in line with our expectations, in particular for FFO adjusted net leverage to remain above 4.0x from 2020 - FFO margin sustainably below 10% - Management not showing commitment to deleveraging to 4x by 2020 through carrying out large debt financed M&A and putting further pressure on Syngenta's balance sheet, and not showing flexibility to moderate the dividend payout in years of poor performance LIQUIDITY Refinancing Pressure: Fitch forecasts positive free cash flow of around USD470 million in 2017 and short-term debt maturities of around USD750 million within Syngenta AG and USD6.5 billion of acquisition facilities at the bidco. These can be partially covered by unrestricted cash of USD661 million at end-2016 and a syndicated undrawn credit facility of USD3 billion. However, there is short-term refinancing pressure on Syngenta and Bidco as the USD6.5 million acquisition loan can mature as early as 12 months (excluding the extension option) from the closure date, meaning Bidco or Syngenta will need to successfully refinance the debt in the capital markets on a longer term basis. Good Access to Capital Markets: Access to capital markets has been very robust for Syngenta, especially on the commercial paper market, with the revolving credit facility never being drawn and being used for CP backup. Fitch expects there to be appetite for the refinancing of the acquisition facilities and the immediate financing need to be replaced with longer-term financing. An inability to refinance and push maturities into the future may result in negative rating action. Restricted Cash: Cash is placed in 'AAA' money funds and is readily available. However, Fitch assumes restricted cash of around USD650 million in relation to insurance captive cash and working-capital requirements, representing an operating minimum liquidity needed by the company. FULL LIST OF RATING ACTIONS Syngenta AG - Foreign Currency Long-Term Issuer Default Rating published at 'BBB'; Stable Outlook - Senior unsecured long-term rating published at 'BBB'. - Foreign Currency Short-Term IDR published at 'F3'. CNAC Saturn (NL) BV - Foreign Currency Long-Term Issuer Default Rating published at 'BBB'; Stable Outlook Syngenta Finance N.V. - Senior unsecured long-term rating published at 'BBB'. - Commercial paper short-term rating published at 'F3'. Syngenta Finance AG - Senior unsecured long-term rating published at 'BBB'. Syngenta Wilmington Inc. - Senior unsecured long-term rating published at 'BBB' - Commercial paper Short-Term rating published at'F3' Contact: Principal Analyst Vladislav Nikolov Analyst +44 20 3530 1288 Supervisory Analyst Amee Attri Director +44 20 3530 1617 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Peter Archbold, CFA Senior Director +44 20 3530 1172 Date of Relevant Rating Committee: 16 May 2017 Summary of Financial Statement Adjustments - Operating leases have been capitalised using a multiple of 8x USD500 million of cash is restricted for intra-year working capital requirements and USD150 million is assumed in relation to insurance captive cash Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. 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