Fitch Affirms Methanex's IDR at 'BBB'; Revises Outlook to Negative

Business Wire, July 14, 2008

CHICAGO -- Fitch Ratings has affirmed the current ratings of Methanex Corporation (Methanex) as follow:

--Issuer Default Rating (IDR) 'BBB';

--Senior unsecured debt 'BBB'.

The Rating Outlook has been revised to Negative from Stable.

In addition, Fitch has assigned the company's senior unsecured revolver a rating of 'BBB'. Methanex's ratings are supported by its size, scale, and low-cost position within the methanol industry; its global distribution network; a track record of free cash flow generation and conservative financial management; and the tailwinds created by high energy prices, which have helped boost methanol prices. Ratings concerns center on lost volumes at the company's Chilean plants due to ongoing gas supply disruptions; the potential for higher near-term capital expenditures to make up for natural gas shortfalls at those plants; and volatility in methanol pricing.

The Negative Rating Outlook reflects Fitch's expectations that Chilean volumes will remain substantially curtailed over the near term, thus narrowing the company's production base and increasing its reliance on a strong pricing environment to maintain credit metrics. Methanex' s 3.8 million tonnes per annum (tpa) Chilean plants comprise approximately 61% of its total capacity but due to curtailed gas exports from Argentina ran at just 32% utilization rates in the first quarter. Note that while the company has some flexibility to boost sales from external purchases, these tend to be significantly lower in margin than production from its own facilities. The outages in Chile have also placed pressure on the company's capex budget, as Methanex is helping to fund accelerated natural gas development with exploration and production (E&P) partners Geopark and ENAP in southern Chile.

For the latest 12 months (LTM) ending March 31, 2008 Methanex's EBITDA was $542 million. EBITDA margin dropped from 28.8% to 23.3%, largely reflecting the loss of higher-margin volumes from the Chilean plants. As calculated by Fitch, free cash flow over the same period dropped to $32.8 million versus $194 million in 2007 and was comprised of cash flow from operations of $447.1 million, capex of $358.8 million, and dividends of $55.5 million. Net share buybacks over the same period rose to $223.7 million. Total cash and equivalents on the balance sheet declined slightly to $465.2 million from $488.2 million at year-end 2007. Methanex's total debt rose to $636.4 million from the $597.3 million seen at year-end 2007 as additional non-recourse debt linked to the Egypt plant came onto Methanex's balance sheet. Note that because Methanex has a controlling interest in the Egypt project, it has consolidated 100% of the underlying project debt onto its balance sheet despite holding just a 60% interest in the facility.

Methanex is the world's largest supplier of methanol, with production facilities located in Chile, Trinidad, and New Zealand, as well as a 1.3 million tpa plant currently under construction in Egypt. 2007 sales of 6.6 million tonnes constituted approximately 17% of estimated global methanol demand. In addition to produced methanol, the company purchases and distributes methanol from project partners and on the spot market. Methanex maintains a global storage and distribution network, including a fleet of eighteen ocean going vessels.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.