MARC has placed the AAAID(s) ratings on Optimal Glycols (Malaysia) Sdn Bhd (Glycols) and Optimal Chemicals (Malaysia) Sdn Bhd’s (Chemicals) RM453.0 million and RM567.0 million Bai Bithaman Ajil Islamic Debt Securities (BaIDS) respectively on MARCWatch Negative. The rating action follows the Kuwaiti government's decision to pull out of a USD17.4 billion 50:50 petrochemicals joint venture with Dow Chemical Company (Dow) which was expected to raise around USD7.0 billion of proceeds for Dow's acquisition of Rohm and Haas Co. (Rohm and Haas), a US specialty chemicals producer. Dow has an indirect 50%-stake in both Glycols and Chemicals via wholly-owned subsidiary Union Carbide Corporation (UCC). The unexpected turn of event is likely to have a negative impact on Dow's financial profile in light of the additional debt burden that Dow will now have to take on in order to finance the USD15.0 billion acquisition of Rohm and Haas. Additionally, the MARCWatch placement reflects concerns that increasingly challenging industry and economic conditions may prevent Dow's post-acquisition credit measures from recovering sufficiently in the near- to intermediate-term to justify maintenance of its AAA shadow rating on MARC's long-term scale.

Dow's credit quality is a key underpinning of the sponsor-supported ratings assigned to the rated debt of Glycols and Chemicals. Both issues benefit from the contractual obligation of respective project sponsors, Petroliam Nasional Berhad (Petronas) and UCC to provide debt service support on a several basis up to 30.0% of the outstanding amount of Glycols and Chemicals' BaIDS, subject to a floor of USD52.0 million for both entities on a combined basis. UCC's obligation to provide sponsor support is backed by a corporate guarantee from Dow. Notwithstanding the credit support extended by Petronas (shadow-rated AAA) and UCC/Dow, Glycols and Chemicals continue to generate sufficient cash flow on their own to meet their respective debt service obligations under their rated debt obligations. Glycols and Chemicals’ ringgit-denominated cash balances including amounts in their respective debt service reserve accounts of RM70.1 million and RM341.2 million respectively as at December 24, 2008 are sufficient to service the next BaIDS repayment in September 2009 of RM40.0 million and RM52.0 million respectively. Meanwhile, its US Dollar cash balances are also sufficient to service the next one year US Dollar term loan repayments.

Glycols and Chemicals’ joint debt-to-equity ratio (D/E ratio) of 0.68 times (x) and adjusted debt service cover ratio (ADSCR) of 3.93x as at March 31, 2008 were in compliance with its covenanted maximum D/E ratio of 2.33x and ADSCR of 1.20x.

MARC expects to resolve the MARCWatch placement over the next two to three months as the impact of the acquisition on Dow's credit profile becomes clearer. MARC employs the 'weak-link' approach to its assessment of supported ratings where two or more parties are severally liable to provide credit support. Accordingly, the ratings will be lowered if MARC's shadow rating on Dow is downgraded upon conclusion of our review.

Contacts:
Rustam Apandi Jamaludin 03-2090 2250  / rustam@marc.com.my;
Sharidan Salleh 03-2050 2243 / sharidan@marc.com.my