MARC has lowered its ratings on Optimal Glycols (Malaysia) Sdn Bhd’s (Glycols) and Optimal Chemicals (Malaysia) Sdn Bhd’s (Chemicals) RM453.0 million and RM567.0 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) respectively to AA+ID(s) from AAAID(s) and removed the ratings from MARCWatch Negative which was placed on January 2, 2009. Concurrently, the ratings outlook is revised to developing.

The lowered ratings incorporates the downgrade of The Dow Chemical Company’s (Dow) public information (pi) rating on national scale to AA+ from AAA whose credit quality is a key underpinning to 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), the national oil company and Union Carbide Corporation (UCC), a wholly-owned entity of Dow, to provide debt service support on a several basis of up to 30.0% of the outstanding amount of Glycols’ and Chemicals' Refinancing Facilities, which include the 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. As at April 1, 2009, Dow’s portion of the support stands at USD42.3 million. MARC employs the ‘weak-link’ approach to its assessment of supported ratings where two or more parties are severally liable to provide credit support. The developing outlook reflects the persisting uncertainty about Dow and Rohm & Haas combined cash flows, debt and capital structure, particularly for Dow, post-acquisition of Rohm & Haas Co. The weaker prospects for the chemical industry as a whole owing to softer demand and volatile raw material costs may see earnings and cash flow generation remaining below potential for an extended period beyond the next 12 months.

Dow’s financial profile has been negatively affected by the substantial increase in debt burden on its acquisition of Rohm & Haas Co. The more than USD16.0 billion Rohm & Haas acquisition will be partially funded by a bridge financing of up to USD12.5 billion. Dow plans to retire the bridging loan by end 2009 through asset sales, issuing of equity and debt, and reducing the company's dividend payout. MARC believes that Dow’s actions to improve its financial position in the near-term will be constrained in the current weak economic environment.

On a stand alone basis, Glycols’ and Chemicals’ credit ratings are at AA-. Glycols and Chemicals continue to generate sufficient cash flow on their own to meet their rated-debt obligations.

MARC will consider an outlook revision to stable once Dow’s credit profile stabilizes. Alternatively, the ratings outlook could be revised to positive if there is material improvement in Dow and Rohm & Haas combined financial and business risk profile.

Contacts:
Sharidan Salleh 03-2050 2243/ sharidan@marc.com.my;
Khairul Emran Mahmud 03-2090 2278/ emran@marc.com.my