Wed, Aug 03, 2011 - Page 12 News List

FPG told to submit suspension plan

MISHAPS:The stocks of Formosa Plastics Group’s four core companies continued to head south yesterday amid concern over the effect of a suspension on profitability

By Jason Tan  /  Staff Reporter

The Ministry of Economic Affairs (MOEA) yesterday said the Cabinet had sent a formal notice on Monday asking the Formosa Plastics Group (FPG, 台塑集團) to submit a checklist and a time-line for operations suspension.

The trouble-ridden industrial conglomerate has responded by saying it would offer “full compliance and assume full responsibility” for the safety mishaps, Minister of Economic Affairs Shih Yen-shiang (施顏祥) told reporters.

Shih said a checklist on which sites would be suspended from operations must be submitted to the ministry within a week, followed by the submission within a month of a time-line on how the group plans to temporarily halt operations at the different sites within a year to enhance overall safety at its Mailiao (麥寮) petrochemical complex in Yunlin County.

FPG, which has seen seven major industrial safety incidents in the past 12 months, experienced its fourth fire in three months early on Saturday morning.

On Sunday, the Cabinet demanded that all the group’s equipment and facilities at Mailiao be suspended in stages within a year for safety inspections.

Shih did not comment on how long it would take for the group to resume operations at Mailiao, only saying this would depend on how much effort the group puts into enhancing safety.

Shares of FPG’s four core affiliates fell for a second day on the Taiwan Stock Exchange, as concern over these companies’ profitability in months ahead continued to plague investors.

Formosa Petrochemical Corp (台塑石化), which is responsible for four of the group’s seven safety incidents, saw its stock fall by its 7 percent daily limit to NT$94. Formosa Plastics Corp (台塑) and Formosa Chemicals and Fibre Corp (台灣化纖) also plunged by 7 percent to close at NT$94 and NT$90.40 respectively. Nan Ya Plastics Corp (南亞塑膠) tumbled 5.7 percent to NT$69.10. Analysts said the spate of incidents would cost FPG its reputation and affect its business performance.

“We believe the frequency of the fires highlight a systematic problem with the group’s maintenance program,” JPMorgan said in a research note. “While Mailiao is next to the ocean and pipe corrosion is a big risk, the same could be said for most of the petrochemical plants in Asia, where clearly the incidence of fires is much lower.”

While the latest fire did not cause serious equipment damage at Formosa Petrochemical, given that refinery products account for about 60 to 70 percent of the company’s revenue, a three-month shutdown of its refinery plants and a government demand that it prioritize fulfilling domestic demand before considering exports of refined products would decrease the company’s earnings by 13 percent this year, according to Macquarie Equities Research’s estimate.

If the suspension of operations were extended to six months, the impact would expand to 22 percent, Macquarie said.

Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, yesterday said the government’s request to temporarily close FPG’s Mailiao facilities for safety checks would significantly lower the group’s profitability and cash flow protection over the next two to three quarters.

As a result, Taiwan Ratings revised downward its outlook on FPG affiliates to negative, while affirming the companies’ long-term corporate credit ratings at “twAA-” and short-term ratings at “twA-1+.”

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