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Investing.com -- Moody’s Ratings has downgraded the long-term corporate family rating (CFR) of OCI N.V. to Ba2 from Ba1. The company’s probability of default rating was also reduced to Ba2-PD from Ba1-PD. Additionally, the $2 billion backed senior unsecured medium-term note (MTN) programme of OCI was downgraded to (P)Ba2 from (P)Ba1, along with its backed senior unsecured medium term notes due in 2033, which were also downgraded to Ba2 from Ba1. The ratings of the company remain under review for potential further downgrades.
This decision by Moody’s is a reflection of OCI’s significantly weakened business profile and unclear strategic direction, over a year since it started a strategic review of its business. OCI has sold off most of its core assets and its EBITDA generation capacity. The company is expected to finalize the sale of its Global Methanol business in the second quarter of 2025. On February 28, 2025, Proman AG, OCI’s joint venture partner, withdrew its legal challenge related to the divestiture of their shared asset, Natgasoline LLC. This move is seen as clearing the path for the Global Methanol assets sale in Q2, subject to regulatory approval.
OCI has estimated a mid-cycle EBITDA of around $150 million for its remaining European assets. As European natural gas prices stabilize, the company anticipates an improvement in the profitability of its European Nitrogen operations, potentially returning to mid-cycle levels. However, Moody’s remains skeptical of this assumption materializing in the near term.
Assuming a $125 million mid-cycle EBITDA, with the company’s $600 million 2033 backed senior unsecured bonds still outstanding and some modest lease and securitization obligations (approximately $100 million), the company could potentially operate with a mid-cycle Moody’s adjusted gross debt/EBITDA of around 5.5 times. This implies high gross leverage for the rating positioning. However, the company could still maintain a large net cash position, possibly nearing $2 billion, resulting in negative net debt, and some reduction of its 2033 bonds could occur.
Moody’s views the large prospective cash balance and overall net cash position as a strong credit positive. However, any capital deployment for shareholder returns could reduce Moody’s tolerance for the estimated high leverage and could lead to further negative ratings pressure.
The rating action was also influenced by governance considerations, as OCI has not yet decided on the usage of all the cash proceeds from its asset disposals. The company has also not defined a go-forward financial policy and strategic direction. Moody’s does not rule out further event risks which could impact the company’s rating positioning.
OCI’s liquidity is very good, reflecting its large net cash position and unused $600 million revolving credit facility due in April 2027. These sources, along with free cash flow and further divestiture proceeds, are expected to adequately cover working capital needs, capex plans and shareholder distributions.
Factors that could lead to an upgrade or downgrade of the ratings will be updated once the review is completed. The review will consider the ongoing disposals and business profile, the evolving capital structure and financial policies, uncertain strategic direction and yet to be communicated application of the disposal proceeds.
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