MOSCOW (MRC) -- Nova Chemicals Corp. debt is trading as if Canada’s largest chemical maker is rated investment grade for the first time in a decade, with projects set to tap cheap US shale gas seen cutting costs and swings in earnings, said Hydrocarbonprocessing.
Credit-default swaps show the cost to insure debt of Nova against default over five years has dropped 50% since June 2013 to 125 basis points, in line with borrowers rated at the lowest investment-grade of Baa3, according to Moody’s Analytics. Calgary-based Nova is rated Ba1 by Moody’s Investors Service and BB+ by Standard & Poor’s, the highest junk-bond grades for each company.
Nova is in the final stages of securing low-cost ethane, a natural-gas liquid, piped from US shale formations to facilities in Ontario and Alberta -- just south of Canada’s oil sands production region. The projects should stabilize fluctuating earnings and cash flow and eventually boost profit, said David Fisher, a Toronto-based analyst at S&P.
"We expect the conditions for a possible upgrade to be met sometime in 2014," Fisher said by phone on May 23. “What we need to see is the company is well on its way to having the projects fully operational and that there are not going to be any major execution challenges as they ramp up."
As MRC wrote before, Nova Chemicals remains on target for a late-2015 startup for its Polyethylene 1 expansion project in Alberta, expected to add at least 950 million lbs/year of linear low density (LLDPE) production the plant. The Calgary-based company has a current annual LLDPE capacity of 1.48 billion lb/year at the Joffre plant.
Nova, which has USD850 million of debt, hasn’t been rated investment grade by S&P since 2002. S&P raised the company’s outlook to positive on Feb. 14.
Nova Chemical is one of the largest world's petrochemical companies, a manufacturer of polyethylene, styrene polymers, monomers, and many other related products.
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