Nufarm credit rating cut to junk

Friday 16th July 2010

Nufarm had its credit rating cut below investment grade and lost more than a quarter of its market capitalisation after slashing its full-year earnings guidance and projecting a jump in debt.

The maker of gyphosphate weed killer best known for the Monsanto brand Roundup failed to allay Standard & Poor’s concerns with a A$250 million equity raising in April. S&P cut its rating to BB from BBB- with a negative outlook, saying Nufarm’s business profile has deteriorated to the point where it no longer warrants an investment-grade level.

Nufarm’s financial profile is “aggressive” and it faces a challenge to refinance seasonal debt facilities it needs to build inventory in preparation for its second-half sales peak, credit analyst Richard Creed said.

The agricultural chemicals maker part-owned by Japan’s Sumitomo Chemical yesterday slashed its guidance for full-year operating profit to A$55 million to A$65 million, down a previous forecast of A$110 million to A$130 million. At the same time, it forecast net debt would rise to A$450 million in the year ending July 31, from a previous estimate of $350 million.

It blamed adverse weather conditions, particularly in North America and Europe, which sapped demand for crop protection products. In the Australian market, tough competition had hampered the company’s ability to raise prices much.

About one third of Nufarm’s bank lines mature before the end of calendar 2010 and refinancing isn’t assured after the company disclosed it will be in breach of its interest cover covenant at July 31 “by a small margin.”

Nufarm said yesterday that it had begun discussions with its lenders to seek a temporary adjustment to the interest cover ratio.Its shares tumbled 27.7% to A$3.79 on the ASX yesterday, when it resumed trading, having been halted for the announcement.

Shareholders who supported its equity raising in April paid A$5.75 a share and Sumitomo spent A$14 a share for its 20% stake last year.

The company has embarked on a “comprehensive review” of its strategy and focus on glyphosphate, new chairman Donald McGauchie said yesterday. He replaced whose long-serving chairman and shareholder Kerry Hoggard, who has retired due to ill health.

S&P’s Creed said there has been a structural change in the global glyphosphate markets, which “faces conditions of oversupply and intense price competition that we believe are likely to persist in the medium term.”

The rating on Nufarm’s Step-Up securities was cut to B from BB.

Businesswire.co.nz

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