Nufarm credit rating slashed

Australian-listed agrichemical company Nufarm has had its long-term credit rating reduced to BBB-.

Standand & Poor’s Ratings Services yesterday lowered its rating from BB following Nufarm’s slashing of its earnings forecast this week – a 50% reduction to between $A55 million and $A65 million.

S&P credit analyst Richard Creed said the downgrade reflected the belief that Nufarm’s business profile had deteriorated.

“The company will be unable to achieve a financial profile commensurate with our view of an investment-grate rating despite the recent $A250 million capital raising,” Mr Creed said.

“The negative outlook reflects the execution risks associated with Nufarm’s ability to successfully refinance its bank lines – of which one-third mature before the end of calendar 2010 – to provide adequate funding for the next season.”

However, he added that achieving a waiver of a likely breach of the company’s bank interest cover covenant in the wake of the earnings downgrade would demonstrate that Nufarm retains the support of its lenders.

This will lend confidence the company will have adequate liquidity to fund its working capital needs.

Mr Creed said the outlook could be revised to “stable” following successful renewal of Nufarm’s bank facilities.

The rating could be further lowered if the company was unable to secure its preferred level of financing, which would constrain working capital funding.

S&P’s view was that the key driver behind the weakening of Nufarm’s business profile was a structural change in the global glyphosate herbicide market, which faces conditions of oversupply and intense price competition.

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A rating change from BB to BBB- would imply an upgrade...

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