Fitch downgrades SCG Chemicals to A- partly due to Long Son Petrochemicals in Vietnam

Fitch Ratings has downgraded SCG Chemicals (SCGC), an arm of Thailand’s giant Siam Cement Group (SCG), from “A(tha)” to “A-(tha)” for its senior unsecured rating of THB100 billion medium-term note program.

In a Monday statement, Fitch Ratings stressed the downgrade reflects its “reassessment” of SCG’s legal incentive to support SCGC to “low” from “medium” in line with Fitch's Parent and Subsidiary Linkage (PSL) Rating Criteria.

The change follows a move that SCGC fully repaid long-term bank loans for the Long Son Petrochemicals (LSP) project in Vietnam. These loans were guaranteed by SCG and the portion of guaranteed debt accounted for 20-50% of SCGC's total debt.

Fitch has also revised down SCGC's Standalone Credit Profile (SCP) to “bbb(tha)” from “bbb+(tha),” due to its high leverage following the investment in Long Son Petrochemicals, while deleveraging is likely to be slow on a slower-than-expected earnings recovery.

Fitch also anticipated that Long Son Petrochemicals is likely to remain suspended for most of 2025 as petrochemical spreads are likely to remain weak. Fitch expects Long Son Petrochemicals will resume its commercial operations in 2026 at the earliest once the spreads reach a more favorable level.

During the standby period, SCGC will focus on the Ethane Feedstock Enhancement project at Long Son Petrochemicals, which will improve its cost competitiveness and feedstock flexibility in the long term.

However, Fitch pointed out that Long Son Petrochemicals, the first and largest petrochemical complex in Vietnam, will substantially increase SCGC's polyolefin capacity and make the company the largest polyolefins producer in Southeast Asia.

SCGC started land preparation for the Long Son Petrochemicals Complex in 2018, started up all utilities in 2022, and conducted a full complex test run in December 2023. In March 2024, it said the complex had recorded an “unexpected technical difficulty” during the whole complex test run.

LSP began its commercial operation (COD) in September 2024, with an initial production output of 74,000 tons during the trial phase. At full capacity, the complex’s annual output will include 1.4 million tons of polyethylene and polypropylene. At full capacity, the complex’s annual output will include 1.4 million tons of polyethylene and polypropylene.

In October 2024, LSP plant temporarily halted operations to manage overall business costs, “with plans to reassess operations when conditions are more favorable,” SCG said.