UPDATE 2-Mongolia agrees $5.5 bln economic bailout plan with IMF, others
* Asian Development Bank, World Bank, others to give up to $3 bln
Overview -- Monsanto plans to issue $500 million of senior unsecured 10- and 30-year notes to refinance maturing debt. -- We are assigning an 'A+' senior unsecured debt rating to these notes. -- All our other ratings on Monsanto remain unchanged. -- The stable outlook reflects our expectation that Monsanto's credit quality will remain consistent with the ratings, incorporating a "strong" business risk profile and "modest" financial risk profile. Rating Action On July 9, 2012, Standard & Poor's Ratings Services assigned its 'A+' senior unsecured debt rating to Monsanto Co.'s proposed offering of $500 million of senior notes due 2022 and 2042. Monsanto plans to use the proceeds of this offering primarily to repay $486 million of notes due Aug. 15, 2012. All our existing ratings on Monsanto, including the 'A+' corporate credit rating and 'A-1' commercial paper rating, remain unchanged. The outlook is stable. Rationale Standard & Poor's ratings on Monsanto Co. reflect a "strong" business risk profile and "modest" financial risk profile. St. Louis, Mo.-based Monsanto is a leading global producer of seeds and herbicides including Roundup, the world's top-selling herbicide brand. Key business attributes include proprietary technology in seeds and biotechnology traits, a high degree of research and development (R&D) spending (averaging about 10% of sales, but higher the past two years), and a promising product pipeline, all of which constitute high entry barriers. Moreover, we believe that long-term trends such as population growth and improving living standards and diets should promote increasing demand for seeds and traits. Monsanto provides seeds with traits such as herbicide tolerance and resistance to pests. This permits lower tillage and reduces pesticide requirements. An important recent development is seeds with lower refuge area requirements (the area required to be planted with conventional seeds to prevent pests from developing resistance). Also new is a biotech drought-tolerant corn product that is undergoing on-farm testing and which Monsanto expects to launch commercially in the U.S. for the 2013 planting season. Monsanto also recently created a technology business unit that uses advanced agronomic practices, seed genetics, and on-farm technology to help optimize farmers' yields while using fewer resources. It expanded this unit with the recent acquisition of Precision Planting Inc. for $210 million, plus a potential performance-based payment of up to $40 million. Although Monsanto faces some opposition to genetically modified food (especially in Europe), it is widely accepted in the U.S. and has been gaining acceptance elsewhere in recent years. As a result, we believe Monsanto has opportunities for increased market penetration. The seeds business comprises a few large global competitors such as Pioneer (not rated) (owned by E.I. DuPont de Nemours & Co. ) and Syngenta AG (A/Stable/A-1), but much of the industry remains fragmented. Monsanto's significant global presence and diversity across a number of crops reduce its vulnerability to regional downturns. However, Monsanto is less diversified than other similarly rated industrial companies. Most of its products are dependent on commercial agriculture (a small part of its business is lawn and garden), and more than 75% of sales are in the Americas. Also, despite diversification into crops such as cotton and vegetables, Monsanto still relies heavily on corn and soybeans. The company expects to become somewhat more global and more balanced by crops and regions during the next three to five years. Its plans call for accelerated growth in Latin America and Eastern Europe and greater emphasis on vegetables. Although global long-term seed fundamentals appear favorable, weather, commodity prices, government policies, and competition could hurt Monsanto's sales volumes in any given planting season. In addition, the company's concentration in key planting regions presents political and economic risks, and the industry practice of supporting receivables financing for customers introduces some credit risk, though, in our opinion, this appears well managed. As a result of oversupply conditions and heightened competition from generic products, Monsanto has restructured and repositioned its herbicide business during the past two years. We expect the amount of the herbicide business' contribution to earnings and cash flow to remain approximately at current levels, but the percentage contribution is likely to decrease as the seeds and traits business grows (herbicides represented 13% of total EBITDA in fiscal 2011). We expect Monsanto to maintain a strong financial profile, with EBITDA margins before depreciation and amortization of 25% or higher and pretax return on capital of about 15%. For the trailing 12 months ended May 31, 2012, these ratios were above 30% and 21%, respectively. As of that date, total debt (adjusted to include about $1.1 billion of off-balance-sheet leases and customer financing, and tax-effected unfunded postretirement, environmental, and litigation liabilities) was about $3.3 billion, and adjusted debt to capital was 21%. Monsanto has gradually increased its dividend in recent years, so that--at an annual rate of approximately $640 million per year--it represents nearly 30% of net income and is significant relative to its free operating cash flow. Share repurchases have also been substantial (totaling more than $500 million in each of the past two fiscal years and $423 million in the first nine months of fiscal 2012). Although recent acquisitions have been relatively small, the company has made large acquisitions in the past, when, with the help of stronger cash flow from the herbicide business, it was able to rapidly reduce related debt. Management has not expressed any specific leverage- or cash flow-to-debt targets, but we expect funds from operations (FFO) to adjusted total debt of at least 50% (as of May 31, 2012, this ratio was 97%). Monsanto is involved in numerous lawsuits and government proceedings that could result in large cash outlays. These matters relate to intellectual property, antitrust, the environment, personal injury, taxes, and securities laws. We will continue to monitor developments and their impact on credit quality. In addition, Monsanto is remediating a material control weakness related to the timing of recording customer incentive programs. It has also launched an offer to rescind certain acquisitions of company stock in an employee compensation plan because it may have inadvertently exceeded the number of shares registered with the SEC for sale in this plan. We do not expect outlays related to this matter to be material. Liquidity The 'A-1' short-term rating incorporates our expectation for liquidity to remain "strong" (as defined in our criteria) despite significant seasonal fluctuations. As of May 31, 2012, Monsanto had about $2 billion of cash and short-term investments, and full availability under a $2 billion revolving credit facility whose maturity it recently extended to 2016. The company primarily uses its credit facility to back commercial paper (it had none outstanding as of May 31, 2012). Following the maturity of the 2012 notes, there are no significant debt maturities until 2016. We expect Monsanto to generate substantial discretionary cash flow in 2012. Key uses of cash are likely to include: -- R&D outlays of about $1.4 billion; -- Pension plan contributions of $84 million; -- Capital spending of $600 million to $700 million, approximately equal to depreciation; -- Dividends of about $640 million; and -- Share repurchases and small acquisitions. Outlook The outlook is stable. Monsanto's solid competitive positions and ability to generate cash flow support the ratings. Monsanto has significant cushion at the 'A+' corporate credit rating for acquisitions, shareholder rewards, or temporary operating setbacks. Nevertheless, we could lower the ratings if operating earnings and cash flow unexpectedly deteriorate sharply, causing FFO to adjusted total debt to drop to and stay below 50%. We believe this could occur if revenues fell by about 10% and EBITDA margins dropped to about 18%. We could also lower the ratings if shareholder initiatives, acquisitions, or adverse litigation were so substantial that they strain credit metrics or erode financial flexibility. A downgrade could also occur in the event of a major setback in the acceptance or approval of biotechnology products, which we consider unlikely at this time. An upgrade is improbable because the company's limited business diversity and industry cyclicality constrain the ratings. Related Criteria And Research -- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- Key Credit Factors: Business And Financial Risks In The Commodity And Specialty Chemical Industry, Nov. 20, 2008 Ratings List Monsanto Co. Corporate Credit Rating A+/Stable/A-1 New Rating Monsanto Co. Senior Unsecured Notes Due 2022 A+ Senior Unsecured Notes Due 2042 A+
* Asian Development Bank, World Bank, others to give up to $3 bln
MUNICH, Feb 19 Iran's Foreign Minister Mohammed Javad Zarif, pointing to Sunni Islamist militants in Syria fighting against its allies in Damascus, told the Munich Security Conference that the use of chemical weapons can never be condoned.
ULAANBAATAR, Feb 19 Mongolia has agreed with the International Monetary Fund and other partners for a $5.5 billion economic stabilization package, according to a statement from the IMF on Sunday.