Standard & Poor’s (S&P), a global credit rating agency, announced on the 22nd that it maintained its long-term issuer credit rating and senior unsecured bond rating of ‘BBB, stable’ for Hanwha Total Energy. Profitability is expected to recover over the next year as market conditions improve, but spreads for some products, such as SM (styrene monomer), are still tight as demand in China has yet to fully recover.
Hanwha Total Energy’s rating outlook was given ‘stable’ based on the judgment that it will maintain its debt-to-EBITDA ratio below 3.0x for up to two years based on earnings recovery and prudent investment policy.
Kim Tae-hee, researcher at S&P, said, “Hanwha Total Energy’s prudent investment policy and improving cash flow are factors that support the company’s financial indicators. It is expected to increase to 800 billion to 1 trillion won in 2023-2024.”
Although facility investment will increase year-on-year this year, free operating cash flow is expected to record a surplus thanks to an earnings recovery and an inflow of working capital from falling raw material prices.
The dividend payout ratio is expected to be slightly lower than in 2021-2022. Researcher Kim said, “For up to two years, we expect discretionary cash flow to be in the black and adjusted debt to decrease. Under S&P’s baseline scenario, the company’s debt-to-EBITDA ratio will increase from 3.6x in 2022 to 2.0x in 2023-2024. It is estimated to improve by ~2.8 times.”
Above all, the ratio of debt to EBITDA is a factor in future credit rating upgrades and downgrades. S&P announced that Hanwha Total Energy’s credit rating could be downgraded if its debt-to-EBITDA ratio exceeds 3.0x for the next 12 to 18 months, and if it maintains the ratio below 1.5x over the same period, it can be upgraded.
The possibility of support from the parent company, Total Energy, served as a factor for upgrading the rating by one notch. Total Energy’s long-term credit rating is ‘A+, stable’, and short-term credit rating is ‘A-1’. Hanwha Total Energy is playing an important role in Total Energy’s overall downstream strategy based on large-scale, high-efficiency petrochemical facilities adjacent to China.
Researcher Kim said, “Given the importance that Hanwha Total Energy plays in the long-term business strategy of its parent company Total Energy’s regional oil refining and natural gas downstream, S&P will provide special support at a normal level if the company experiences financial difficulties. will be provided,” he said.
“The credit rating may be downgraded even if it is judged that the relationship with the parent company has significantly weakened due to a decrease in Total Energy’s holdings. However, we believe that this situation is unlikely to become a reality within the next 12 months.” It was vague.