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Moody's cuts Sumitomo Chemical outlook after Roivant deal

Moody's cut Sumitomo Chemical Co. Ltd.'s outlook to negative from stable and affirmed its Baa2 issuer rating, following an announcement to acquire equity stakes in Roivant Sciences Ltd.

The transaction will keep Sumitomo Chemical's leverage high over the next few years, as the company is likely to partially fund the acquisition via debt, Moody's analyst Yukiko Asanuma said. Also, it will take time for the acquired assets to start contributing revenue.

The assets that Sumitomo Dainippon Pharma Co. Ltd. will acquire are drugs that are still under development.

Earlier in September, Sumitomo entered into a nonbinding agreement to acquire equity stakes in Roivant and certain of its subsidiaries for approximately $3 billion. A definitive agreement is expected by the end of October.

Moody's estimates a substantial portion of the investment could be funded with cash on hand.