China Credit Ratings today announced that due to the reduction in borrowing leverage, it has upgraded the long-term issuer credit ratings of Formosa Plastics Corporation's four major companies from "twAA-" to "twAA". It has also upgraded the debt issuance credit ratings of various corporate bonds from "twAA-" to "twAA" and confirmed its short-term issuer credit rating as "twA-1+". In addition, due to the expansion of liquidity buffer space, China Credit Ratings adjusted the liquidity assessment result of Formosa Plastics Group from an adequate level to a very strong level, and the rating outlook remained "stable."
China Credit Rating said the rating upgrade reflects Formosa Plastics Group's significantly improved financial strength and profitability resilience. Formosa Plastics' strategy of shifting toward high-end electronic materials and other specialty products is expected to sustain its improved profitability as the temporary benefits from high oil prices fade. China Credit Ratings noted that stronger operating cash flow, proceeds from the disposal of partial equity interests in Nanya Technology and Nanya Circuit Board, and improvements in the fair value of short-term investments should enable Formosa Plastics Sibao to maintain its borrowing leverage at a low level and enhance financial flexibility in the next two years.
China Credit Ratings further pointed out that stronger profitability and lower borrowing leverage are expected to significantly increase Formosa Plastics' EBITDA in 2026 from NT$65.5 billion in 2025 to NT$190 billion to NT$210 billion, and the borrowing-to-EBITDA ratio in the next two years will also remain below 0.5 times.
In terms of various business developments, China Credit Rating predicts that Formosa Plastics Group's refining business profit margin will be more resilient, mainly due to the long-term shutdown of damaged refineries in the Middle East and some refineries may not be able to fully resume operations until 2027, coupled with planned maintenance operations and limited new refining capacity. At the same time, the growing demand in areas such as AI servers, high-performance computing and high-speed networks should drive strong growth in the high-value electronic materials business and enhance the diversification and resilience of the group's profits.
China Credit Rating estimates that the contribution of the electronic materials and components business to the group's consolidated EBITDA will increase from less than 30% from 2024 to 2025 to 40% to 50% from 2027 to 2028. Although the continued oversupply of bulk chemicals may cause it to continue to suffer losses in the next one to two years, the continued growth in the profit contribution of electronic materials should reduce the group's reliance on bulk chemicals.
Regarding the future "stable" rating outlook, China Credit Ratings believes that this reflects that Formosa Plastics Group's borrowing-to-EBITDA ratio will remain below 0.5 times in the next one to two years, thereby providing ample buffer space for the volatility of its commodity business.
In addition, Formosa Plastics' capital expenditures from 2026 to 2027 are expected to remain within a controllable range and will be mainly used to invest in specialty chemicals, electronic materials and decarbonization, rather than investing in other large bulk chemical projects. In terms of liquidity, supported by a significant increase in the value of short-term investment positions and enhanced operating cash flow, China Credit Ratings believes that the group should be able to maintain its liquidity sources to liquidity use ratio at a level of more than 2 times in the next 24 months, which is sufficient to meet liquidity needs until June 30, 2028.
