MARC has placed its AA+ID(s) 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 on MARCWatch Positive. The rating action follows the signing agreement on August 17, 2009 for the sale of Union Carbide Corporation’s (UCC) and UCMG LLC’s (a wholly-owned UCC subsidiary) shares in OPTIMAL Olefins (Malaysia) Sdn Bhd, Glycols and Chemicals to Petroliam Nasional Berhad (PETRONAS) for a price consideration of US$660 million. UCC is a wholly-owned subsidiary of The Dow Chemical Company (Dow). MARC views the ratings impact of the ownership change on the two entities as positive by virtue of the improved prospective credit support which will be solely provided by PETRONAS post-acquisition and the potential rating uplift associated with the application of our parent-subsidiary rating criteria. Dow’s continuing involvement as technical support provider to both entities, meanwhile, ensures that the divestiture has inconsequential operational and market risk implications.

BaIDS holders of Glycols’ and Chemicals’ currently benefit from the contractual obligation of the project sponsors to provide cash deficiency 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 US$52.0 million for both entities on a combined basis. MARC’s current ratings reflect a ‘weak-link’ assessment of the credit strength of the cash deficiency support. Post-acquisition, MARC’s assessment of the credit support will reflect PETRONAS’ very strong creditworthiness.
 
Dow’s divestiture affects a number of existing agreements between Dow entities and Glycols and Chemicals, as the details of which are given as follows:

1. the distribution agreement for derivatives with Chemicals will be terminated and replaced with a Product Off-take   Agreement.
   
   
2. the ethylene glycols distribution agreement with Glycols will be terminated and  replaced with a distribution agreement with Malaysian International Trading Corporation Sdn Bhd (MITCO), a wholly-owned subsidiary of PETRONAS.
   
   
3. the master services agreement with Glycols will be terminated and  replaced with a Glycols technical services agreement.
   
   
4. the master services agreement with Chemicals will be terminated and  replaced with a Chemicals technical services agreement.

The MARCWatch placement also incorporates the potential positive credit implications arising from the minimum off-take of Chemicals’ products under the new Product Off-take Agreement and the extension of the off-take agreement beyond the tenure of the BaIDS. The foregoing minimises offtake risk.

The change in Glycols’ distribution arrangement is expected to have a neutral impact on its marketing of its products on the basis of MITCO’s established distribution network in Asia and its familiarity with Glycols’ product group.

MARC draws comfort from the operational track record of Glycols and Chemicals and Dow’s continuing role in providing technical support to both entities under the new technical service agreements.

MARC expects to resolve the MARCWatch Positive status of the ratings upon completion of the transaction.

Contacts:
Sandeep Bhattacharya 03-2090 2247 / sandeep@marc.com.my;
Khairul Emran Mahmud 03-2090 2278 / emran@marc.com.my