CMO lowered to `negative' because of debt concerns

Taiwan Rating Corp (中華信評), a local arm of Standard and Poor's, yesterday lowered its outlook on Chi Mei Optoelectronics Corp (CMO, 奇美電子) to "negative" over concerns about mounting debts from aggressive capital spending and weak profitability.

Taiwan Rating could downgrade the nation's No .2 flat panel maker's long-term credit rating to "twBBB+" from the current "twA-," if the company's debt ratio exceeds 50 percent, Taiwan Rating analyst Raymond Hsu (許智清) said by phone.

CMO's ratio of net debt to capital increased to 41.8 percent last year and will add some percentage points this year, due to constant and massive capital spending, compared to 29 percent in 2005, Hsu said.

"The outlook revision reflects Taiwan Rating's concern over CMO's rising debt because of its aggressive expansion plan, aiming to capture a bigger market share," Hsu said.

CMO planned to almost halve its capital spending to between NT$70 billion and NT$75 billion this year to make more liquid crystal-display (LCD) panels for televisions as demand increased from last year's slump. Last year, it spent NT$125.8 billion on new facilities and equipment.

Hsu had previously given the company a "stable" outlook.

CMO's bigger local rival AU Optronics Corp (AUO, 友達光電) may experience an increase in its debt ratio to 43 percent as local firms were more aggressive in adding capacity than their South Korean competitors, Hsu said.

AUO and LG Philips LCD Co, the world's second-biggest flat panel supplier, are not currently on the customer list of Taiwan Rating.