FTC Credit Ratings:
In order to coordinate the loan assurance on the joint investment in Formosa Ha Tinh Steel Corp. (FHS) with Formosa Plastic Corp. (FPC) group, the Company accepts the suggestion of the finance division of FPC group to adopt Taiwan Ratings' credit ratings from 2014 so as to strengthen the effectiveness of endorsement assurance.
Based on our presentation, its interview with our senior executives at our Taipei branch on October 23, 2019, and its inspection of FTC's operational structure, Taiwan Ratings gives FTC's seven-consecutive-year financial performances the following corporate credit ratings.
|Year||Long-term credit rating||Short-term credit rating||Rating outlook|
Explanation of 2020 corporate credit ratings:
Taiwan Ratings Corp. (TRC) affirmed its 'twA' long-term and 'twA-1' short-term issuer credit ratings on Formosa Taffeta Co. Ltd (FTC) on Oct. 23, 2020. The outlook on the long-term rating is stable. Weakened competitive position due to lower capacity utilization amid COVID-19 has resulted in weakening profitability of FTC. TRC forecasted that FTC's profitability will be under pressure with its EBITDA margin declining.
However, declining guarantee on the FP group's steel mill in Vietnam helps to mitigate the risk of FTC's profitability weakening further. TRC expected FTC to gradually reduce its debt guarantee for the group's steel mill in Vietnam (Formosa Ha-Tinh (Cayman) Ltd.), because the steel mill will be able to refinance its debt without the shareholders' guarantee from 2021. This will allow FTC to reduce its debt level significantly. In combination with the Company's prudent capital expenditure (capex) and investment plans, we expect FTC's ratio of FFO to debt to improve to from 2021to 2022.
Cash dividend from Formosa Petrochemical Corp. (FPCC) is a positive credit factor.
TRC view FTC's investment in FPCC as a positive credit factor and believe that the sizable cash dividend from FPCC is sustainable and will support FTC's capex and investments plans and prevent a significant increase in its debt.
The stable outlook reflects that FTC will significantly reduce its guarantee on FP group's steel company in Vietnam from 2021 in line with that of its group members, which will help to mitigate the risk of FTC's EBITDA margin weakening between 2020 and 2022 due to prolonged weak demand amid COVID-19.