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Rating Action:

Moody's affirms Syngenta's Ba2 rating with stable outlook

21 May 2021

London, 21 May 2021 -- Moody's Investors Service ("Moody's") today affirmed Syngenta AG's (Syngenta) Ba2 corporate family rating (CFR) and its Ba2-PD probability of default rating (PDR). Concurrently, Moody's affirmed the Ba2 senior unsecured notes ratings of its guaranteed subsidiaries Syngenta Finance N.V. and Syngenta Finance AG and their senior unsecured (P)Ba2 MTN programme ratings. Finally, Moody's also affirmed the Not Prime short-term rating of Syngenta. The outlook on all ratings is stable.

The full list of affected ratings is at the end of the press release.

RATINGS RATIONALE

Syngenta's Ba2 ratings continue to reflect its significantly higher standalone financial leverage following its takeover by China National Chemical Corporation Limited (ChemChina, Baa2 stable) in 2017 as Syngenta had directly taken on $4.75 billion of additional debt related to the acquisition. As a consequence, Syngenta's adjusted total debt/EBITDA stood at 4.9x as of year-end 2020, from 2.0x before the acquisition in 2016. The contractual arrangements between ChemChina and Syngenta do not provide a fully sufficient ring-fencing mechanism to insulate Syngenta's creditors from any potential detrimental action taken by ChemChina on Syngenta's credit quality. Therefore, ChemChina's highly leveraged capital structure, with Moody's adjusted total debt/EBITDA of 13.8x as of 2020, heightens the risk that Syngenta's owner could make calls on its subsidiary's cash flow and debt capacity.

Historically, Syngenta has been able to generate significant cash flow and Moody's expects regular dividend upstreaming to be a primary liquidity source to service the acquisition debt of around $35.5 billion raised by ChemChina and its guaranteed subsidiaries. As a result, Moody's views ChemChina's Baseline Credit Assessment (BCA) of ba3 as a significant constraint to Syngenta's rating, although the rating agency continues to position Syngenta's rating one notch above it, given the latter's strong business profile and adequate standalone financial profile.

Nevertheless, the proposed joint restructuring of ChemChina and Sinochem Group (Sinochem) through a merger as well as the planned IPO of Syngenta Group Co., Ltd (Syngenta Group), an interim holding company of Syngenta AG, are credit positive for ChemChina and by extension also for Syngenta. Should these transaction result in an upgrade of ChemChina's BCA then this could also lead to an upgrade of Syngenta's ratings. However, at this point, details about both transactions are not yet clear such as the capital structure of the combined ChemChina and Sinochem Group and the magnitude of cash proceeds and the use of the proceeds from the planned IPO of Syngenta Group. Accordingly, Moody's does not see an immediate rating impact from either of the planned transactions.

Syngenta's stand-alone credit profile remained relatively stable since the acquisition by ChemChina. After a difficult 2019 with muted overall sales growth mainly because of severe flooding in the US, delayed planting and reduced acres, and record drought in Australia, Syngenta achieved 5% sales growth in 2020 (13% growth based on a constant exchange rate), compared with 2019. Both segments, Crop Protection and Seeds, contributed largely equally to the sales growth in 2020. Syngenta's Moody's adjusted EBITDA improved slightly by 3% to $2,337 million compared with $2,267 million in 2019 as adverse foreign exchange movements prevented a more pronounced EBITDA increase. Syngenta's deleveraging was held back in recent years by the $1.4 billion acquisition of Nidera Seeds in 2018, a total of $1.5 billion of settlement payments for the MIR 162 Corn Litigation in 2018 and 2019 and dividend payments of $900 million in 2019 and $700 million in 2020.

Despite Moody's projection of sales and EBITDA growth in 2021-22, the rating agency only expects a moderate improvement of Syngenta's key credit metrics as free cash flow generation should remain low due to dividend payments and potential cash outflow for bolt-on acquisitions.

Syngenta's credit profile continues to benefit from its strong product offerings, which underpin the group's solid positions in the global crop protection and seeds markets, characterised by robust long-term demand fundamentals and high barriers for generic competitors. Also, the acquisition was highly strategic for ChemChina and the Government of China (A1 stable); therefore, Moody's expects the owner to not endanger Syngenta's growth prospects by putting undue pressure on its financial position.

LIQUIDITY

Moody's views Syngenta's liquidity as adequate. Notably, the company's exposure to the inherent seasonality of agricultural activities leads to significant fluctuations in its working capital requirements (and debt levels) throughout the year. A significant buildup of working capital generally takes place during the winter and spring seasons of the Northern Hemisphere, resulting in peak commercial paper (CP) issuance in the first and second quarters of the year before unwinding during the summer, as the group collects receivables from growers.

As of the end of 2020, Syngenta had cash balances of $2.5 billion, as well as a $3.0 billion committed revolving credit facility (RCF) maturing in 2024. The RCF was undrawn and fully available at the end of 2020. The company also has access to a $2.5 billion Global Commercial Paper program which was undrawn at the end of 2020 but the average outstanding balance under the program was $996 million in 2020.

In January 2021, Syngenta commenced a cash tender offer for its outstanding 2042 and 2048 notes and received tenders of $278 million. At the end of 2020, Syngenta had short term debt of around $1.9 billion (including a $750 million bond which matured in April 2021) and additional debt maturities of around $0.7 billion in 2022. Together with Moody's forecast of slightly positive FCF (after dividends) in 2021-22, Syngenta should have sufficient liquidity to meet its debt maturities in 2021-22.

RATIONALE FOR STABLE OUTLOOK

The stable rating outlook reflects the recovery in Syngenta's operating profitability from the weak performance in 2019; and Moody's expectation that it will continue to record earnings growth in 2021-22, supported by its strong product pipeline and further efficiency gains. The stable outlook also reflects Moody's expectation that ChemChina will refrain from upstreaming dividends in excess of 60%-65% of Syngenta's net income.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Considering the constraints resulting from ChemChina's highly leveraged capital structure, an upgrade of Syngenta's Ba2 rating is likely to be subject to an upgrade of ChemChina's BCA. A significant debt reduction at ChemChina, for example, as a result of the monetisation of a minority stake in the new interim holding company Syngenta Group, could result in positive rating pressure. Positive rating pressure could also develop as a result of upcoming joint restructuring of ChemChina and Sinochem Group (Sinochem) through a merger.

Any prolonged increase in Syngenta's financial leverage that may result from higher-than-expected dividend payouts (that is, in excess of 60%-65% of net income) to its parent or a sizeable debt-funded acquisition, or both, would strain the Ba2 rating. Additionally, any negative pressure on ChemChina's rating or BCA could exert downward pressure on Syngenta's rating.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: Syngenta AG

....LT Corporate Family Rating, Affirmed Ba2

....Probability of Default Rating, Affirmed Ba2-PD

....Other Short-Term Rating, Affirmed NP

..Issuer: Syngenta Finance AG

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba2

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Ba2

..Issuer: Syngenta Finance N.V.

....BACKED Senior Unsecured Commercial Paper, Affirmed NP

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba2

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Ba2

..Issuer: Syngenta Wilmington Inc.

....BACKED Senior Unsecured Commercial Paper, Affirmed NP

Outlook Actions:

..Issuer: Syngenta AG

....Outlook, Remains Stable

..Issuer: Syngenta Finance AG

....Outlook, Remains Stable

..Issuer: Syngenta Finance N.V.

....Outlook, Remains Stable

..Issuer: Syngenta Wilmington Inc.

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Basel, Switzerland, Syngenta AG (Syngenta) is one of the world's leading agriculture companies, with reported sales of $14.3 billion and Moody's-adjusted EBITDA of $2.3 billion in 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sven Reinke
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
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London E14 5FA
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JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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