S&P lowers long-term rating on Ciba; outlook negative

FRANKFURT, Germany, Aug. 20, 2008 (Press Release) - Standard & Poor's Ratings Services said today it lowered its long-term corporate credit rating on Switzerland-based specialty chemicals producer Ciba Holding Inc. to 'BBB-' from 'BBB'. The 'A-3' short-term rating was affirmed. The outlook is negative.

"The downgrade and negative outlook reflects a significant deterioration in Ciba's profitability and cash flow generation, which has accelerated significantly in the first half of 2008, as well as the company's continuously shareholder-friendly dividend policy," said Standard & Poor's credit analyst Tobias Mock. "Furthermore, the company announced significant strategic portfolio changes and a focus on growth, including acquisitions, in the coming years, which could lead to a further deterioration in credit quality."

In second-quarter 2008, Ciba was still unable to increase its selling prices to offset steeply increasing raw material costs. The company also suffered from its assets mismatch and a significantly negative currency effect. Operating income dropped by 61%, with an especially weak performance in Plastic Additives and Water and Paper Chemicals divisions.

The significant portfolio changes planned by Ciba over coming quarters include a likely sale of its paper and publication ink business, an expansion in plastic additives in the Middle East through a joint venture, and bolt-on acquisitions in its coating effects business. These transactions are expected to support our business risk assessment of Ciba, and could be even positive. However, the process likely to be costly and to have a negative impact on Ciba's balance-sheet strength in the short to medium term given the currently modest business outlook.

The ratings on Ciba reflect the group's established position as a world-leading producer of additives for plastics and a leading producer of pigments, coating additives, water-treatment chemicals, and chemicals for the paper industry. Ciba therefore enjoys strong regional and product diversification, as well as economies of scale in research and development, marketing, and distribution, which partly offset the cyclical end markets and competitive nature of the industry. The ratings also reflect the company's intermediate financial risk profile.

"The negative outlook reflects the risk that Ciba's operating performance will continue to be weak and the new strategic plan could further weaken the company's balance sheet and credit protection ratios in the short to medium term so that it fails to achieve adequate levels for the 'BBB-' rating," said Mr. Mock. Ciba needs funds from operations to debt of about 30% and debt to EBITDA of below 3x to maintain the 'BBB-' rating.