Standard & Poor’s Revises ICI’s Outlook to Positive

Standard & Poor’s Rating Services (S&P) has revised its outlook on Imperial Chemical Industries PLC (ICI) to positive from stable following a “significant” improvement in ICI’s balance sheet after receiving net disposal proceeds of £1.5 billion in the past six months. At the same time, S&P affirmed its corporate ratings of ICI at ‘BBB’ long-term and ‘A- 2’ short-term.

In March, Moody’s Investor Services upgraded ICI’s senior unsecured debt rating of ICI and its guaranteed subsidiaries to Baa2 from Baa3. The short-term ratings for the guaranteed commercial paper programmes of ICI Wilmington Inc. and ICI Finance plc have also been upgraded from to P-2 from P-3 with a stable outlook. 

In its statement released yesterday, S&P noted, “At Dec. 31, 2006, ICI had net financial debt of £329 million, which is significantly reduced, mainly as a result of the cash inflow from the Sept. 1, 2006, sale of Uniqema and solid operating performance.  The pension deficit has nearly halved over the past two years due to significant onetime contributions from disposals and increased pension top-up payments.  Sales of continuing operations increased by 6% and trading profit by 5% in 2006. Credit protection ratios have improved, with funds from operations to debt at about 34%.” 

The announcement stated: “A weakening of pricing power, significant debt-financed acquisitions, or a more shareholder-friendly policy could have negative implications for the rating,” but concluded, “The outlook is positive, as ICI’s significant strengthening of its balance sheet over the past two years will allow for significantly higher cash flow protection ratios.  Cash flow generation is expected to pick up over the next few years, owing to strengthened business operations, expected cost savings from restructurings, and a decline in legacy costs from past divestment activities.”