Fitch Ratings has downgraded
The Outlook is Stable. Fitch also downgraded the senior secured ratings of debt issued by
The downgrade reflects IGH's high leverage, resulting from prolonged weak chemical markets in 2023 and 2024, sustained sizeable acquisitions, and large capex until 2025 as IGH builds Project One (P1). This will drive EBITDA net leverage to peak at 6.8x in 2024 and return below 4x in 2026. We assume P1 lifts EBITDA from 2027. The Stable Outlook reflects our expectations that deleveraging will be achieved as chemical markets recover, contributions to cash flows from acquisitions rise and takes into account IGH's efforts to reduce non-P1 capex, costs and dividends, especially in 2024.
IGH's rating continues to reflect its position as one of the world's largest petrochemical producers, with leading market positions in
IGH plans to raise about
Key Rating Drivers
Leverage Surge: We expect EBITDA net leverage to rise to 5.9x in 2023 and 6.8x in 2024 due to a combination of prolonged weak chemical markets, high growth capex and significant loans to related parties. We forecast Fitch-defined EBITDA to fall 44% in 2023 to
This is despite our expectation of no dividend payments and strict control of non-P1 capex in 2024. IGH's leverage will decline from 2025, assuming a further improvement in market conditions supporting EBITDA growth, and will fall below 4x in 2026.
P1 Supports Costs Position: IGH is constructing a new 1.45 million tonne per year ethane cracker in
P1 Debt Consolidated: We include P1 project finance debt in our calculation of financial debt due to the strategic nature of the investment for IGH, despite the lack of recourse to IGH, as we would expect its financial support if needed. Excluding P1 debt, we estimate that IGH's EBITDA net leverage will average 5x in 2023-2025 and fall below 3x from 2026, while its free cash flow (FCF) will be positive. The
Sustained M&A: In 2024 IGH will spend about
In our view, this sustained activity during the market downturn illustrates IGH's opportunistic approach to acquisitions, to take advantage of attractive asset valuation, which may be more cost efficient than greenfield investments.
Market, Capex, Group Risks: The volatility of the chemical markets and the extent of current capacity oversupply cast doubt on the timing and strength of a recovery. Global capacity rationalisation may be required to re-balance supply with weak demand due to lower growth in
Notching for Instrument Ratings: About 75% of IGH's debt at end-3Q23 consisted of senior secured notes and term loans, which rank equally among themselves. The remaining debt mainly consists of debt facilities used to fund the acquisition of assets and capex. The senior secured debt contains no financial maintenance covenant and is rated one notch above the IDR to reflect its security package.
Rated on Standalone Basis: IGH is the largest subsidiary of
Corporate Governance: IGH's corporate governance limitations are a lack of independent directors, a three-person private shareholding structure and key-person risk at
Derivation Summary
IGH's business profile reflects its large, multiple manufacturing facilities across
IGH has stronger market-leading positions, larger scale and greater diversification and production flexibility than
IGH's scale and diversification is comparable to Quattro's. However, we believe that IGH's cost position is stronger due to its ability to use ethane feedstocks at its US and
IGH's structure is complex compared with peers as it is part of the wider
Key Assumptions
Revenues to fall 29% in 2023, then growing 7% in 2024 and 2025, 4% in 2026 and 1% in 2027
EBITDA margin to fall to 10% in 2023, growing to 11% in 2024, 13% in 2025, 14% in 2026 and 15% in 2027
Capex of
P1 completed in 2026 with EBITDA contribution from 2027.
Dividends of
Acquisition of 50% stake in Tianjin Nangang ethylene project and the ethylene oxide asset from
Dividends received from SECCO JV and Tianjin JV from 2025 and 2026 onwards, respectively
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
EBITDA net leverage maintained at or under 3x through the cycle
Corporate-governance improvements, in particular, better transparency on decisions regarding dividends and related-party loans, and independent directors on the board
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Further weakening of leverage metrics versus Fitch's rating case linked to acquisitions or higher dividends leading to forecast EBITDA net leverage remaining above 4x beyond 2025
Significant deterioration in business profile such as cost position, scale, diversification or product leadership or prolonged market pressure translating into EBITDA margins well below 10% on a sustained basis
Liquidity and Debt Structure
Robust Liquidity: At
Higher Interest Costs: Most of IGH's debt had floating interest rates as of
Issuer Profile
IGH is an intermediate holding company within
Summary of Financial Adjustments
Fitch reclassified
Fitch reclassified
Fitch excluded
Debt increased by amortised issuance costs of
Fitch excluded
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
We have revised IGH's ESG Relevance Score for 'Governance Structure' to '4' from '3' due to ownership concentration and a lack of board independence in light of opportunistic decision-making process despite weak chemical market conditions. IGH has an ESG Relevance Score of '4' for 'Group Structure' due to the complex group structure of the wider
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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