Moody’s assigns (P)Baa2 rating to EQUATE’s GMTN programme

LONDON, March 24: Moody’s Investors Service, (“Moody’s”) has today assigned a (P)Baa2 rating to EQUATE Petrochemical Co. K.S.C.C’s

(“EQUATE”) new GMTN programme that is established under MEGlobal Canada ULC. The outlook is negative. RATINGS RATIONALE The rating and outlook on the new GMTN programme mirrors EQUATE’s long-term issuer rating of Baa2 and negative outlook. This is because bonds issued under this programme will be unconditionally and irrevocably guaranteed on a joint and several basis by EQUATE and The Kuwait Olefins Company K.S.C.C. (“TKOC”).

EQUATE has established the new programme in order to undertake a liability management exercise. Proceeds from the planned issuance will be used to help repay the $1.9 billion term loan that is due in 2023. The transaction will be leverage neutral and will extend the company’s debt maturity profile. RATING OUTLOOK On 3 March 2020, Moody’s affirmed EQUATE’s Baa2 issuer rating and changed the outlook to negative from stable. This decision reflected the weak product price environment and the supply and demand imbalance in the market for ethylene derivatives which is likely to weigh on product price recovery in the nearterm, thus exposing the company’s leverage to further downside risks.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward rating pressure is unlikely given the negative outlook.

Notwithstanding this, upward pressure would be supported by (1) EQUATE Group displaying a track record of maintaining net debt/EBITDA below 2.0x at all times through the cycle and maintaining strong profitability; (2) increasing scale and reducing concentration risks; and (3) a positive revision in Moody’s GRI assumption on extraordinary support from the government of Kuwait.

The ratings could be downgraded if (1) net debt/EBITDA is sustained above 3.5x, for instance as a result of a weaker operating performance and high cash outflows such as through capex or dividend payments; (2) liquidity profile weakens; and (3) there is a reduction in Moody’s current assumption of government support or following a downgrade of the Kuwaiti government’s rating. PRINCIPAL METHODOLOGY The methodologies used in this rating were Chemical Industry published in March 2019, and Government-Related Issuers Methodology published in February 2020. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Established in 1995, EQUATE is a Kuwait-based petrochemical producer, with a focus on ethylene glycol (EG) and polyethylene (PE). EQUATE is also the operator of TKOC, which manufactures EG through a production unit adjacent to EQUATE’s. Both companies share the same ownership structure. Petrochemical Industries Company (PIC, 42.5%), which in turn is wholly owned by Kuwait Petroleum Company (KPC), The Dow Chemical Company (Baa2 stable, 42.5%) via Dow Europe Holding B.V., Boubyan Petrochemical Company (9%) and Al-Qurain Petrochemical Industries Company (6%). The EQUATE Group reported revenue of $3.3 billion and a Moody’s-adjusted EBITDA of $1.2 billion in 2019.