Alcan Aluminium $300m Sr Unsecd Debt Rtd 'A-' by S&P.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/23/98 --Standard & Poor's today assigned its single-'A'-minus rating to Alcan Aluminum Ltd's issue of US$300 million of 10 and 30-year senior unsecured debentures.

The issue is in two tranches; US$200 million, 6.25% maturing on Nov. 1, 2008 and $100 million, 7.25% maturing on Nov. 1, 2028. The issue is the final drawdown from the company's US$400 million shelf registration filed in August 1994. Proceeds from the issue will be used for general corporate purposes.

The ratings on Alcan Aluminium Ltd reflect the company's standing as one of the world's largest and lowest cost integrated aluminum producers. Alcan benefits from its broad product and geographic diversity and from its inherent low cost structure stemming from its captive hydroelectric power. In addition, as a result of investments over the past few years, Alcan is now the largest producer of rolled products and is well positioned to exploit the anticipated strong secular growth in the container and transportation markets. However, Alcan is still somewhat disadvantaged by higher-than-average raw material costs and remains subject to the commodity risk and cyclicality inherent in the aluminum industry.

The company's financial profile has shown steady improvement for the past three years from previous subpar performance. The improvement is the result of the refocusing of the company through the sale of nonstrategic assets, the instituting of cost reductions, and the deleveraging of the balance sheet. At year-end 1997, the ratio of total debt-to-capitalization was a conservative 25%, down from a high of 39% in 1993. Accordingly, earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA) interest coverages were strong at 7 times (x) and 11x, respectively, as was the ratio of funds from operations to total debt. However, profitability as measured by return on permanent capital remained weak at 11% and could continue to be constrained near term by low aluminum prices.

Industry fundamentals, began to weaken in the third quarter of 1997 as a result of the negative impact on demand of the Asian financial crisis. With the spread of that crisis to Latin America and the addition of fiscal and political turmoil in Russia, industry fundamentals could remain under pressure for at least the balance of the year. The company is expected to continue to have large capital requirements as it invests to grow its business and improve efficiency, such as the US$1.6 billion 375,000-ton Alma smelter project in Quebec.

OUTLOOK: STABLE

Alcan's financial profile is expected to show continued improvement as the company remains focused on increasing operating efficiency and profitability in preparation for the next downturn. ---CreditWire