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November 27, 2007 |
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CAMARGO CORREA: Fitch Affirms BB Foreign & Local Currency IDRs Fitch Ratings has affirmed the foreign currency and local currency Issuer Default Ratings of Camargo Correa S.A. at 'BB'. Fitch has also affirmed the 'BB' rating on the US$250 million senior unsecured bonds due 2016 issued by CCSA Finance Limited (a special-purpose vehicle wholly-owned by Camargo and incorporated in the Cayman Islands), which is unconditionally guaranteed by Camargo Correa. In addition, Fitch has also upgraded Camargo's national debt rating to 'AA-(bra)' from 'A+(bra)'. The Rating Outlook is Stable. The ratings affirmation and national scale ratings upgrade reflect the improving Brazilian economic environment which has begun to favorably impact much of Camargo Correa's businesses, particularly in its cement and engineering and construction businesses. The company's core businesses of cement, engineering and construction, textiles and footwear are highly correlated to general economic conditions in Brazil, Argentina and other countries in which it operates. Current domestic environment has experienced continued improvement, risks associated with a softening United States economy and the impact of it on emerging market countries such as Brazil and Argentina appear to be lower then in previous cycles. Camargo Correa benefits from its diversified portfolio of operations, adequate market position in the industries in which it participates, and strong liquidity relative to consolidated leverage, which partially mitigates exposure to economic risks. Additionally, the company has both continued to increase diversity of revenues and cash flows across industry sectors and the proportion of exports sales abroad within total revenues. Camargo Correa is seeking to grow strongly over the next several years and further position itself among the top five industrial private conglomerates in Brazil, further strengthening its market position. Some of this growth will be organic, particularly in the footwear and engineering and construction segments, which are planning to expand their market base internationally. In the cement and textiles segments, much of the growth is planned through acquisitions. The company does not expect to enter any new industries in the near future. In recent years, Camargo Correa has pursued a growth strategy targeted primarily to expand operations outside of Brazil, which should further diversify country risk. Recent acquisition highlights include the 2005 US$1 billion acquisition of Loma Negra, the largest cement producer in Argentina. Additionally in 2007, Camargo Correa it completed (agreement entered in 2006) the merger of Santista Textil S.A., its textile manufacturer, with Tavex Algodonera S.A., the largest manufacturer of denim in Europe. Export revenues and sales abroad, which accounted for approximately 18% of revenues in 2006, should grow to approximately 22% in 2007, primarily as a result of these transactions. Credit protection measures have been gradually improving since Camargo Correa took an aggressive financial position to fund acquisitions, which had caused credit protection to deteriorate in 2005. Leverage ratios are now solid for the rating category on a total debt to EBITDA basis and strong on a net debt basis. The company has had a history of maintaining a large cash balance on its balance sheet in order to facilitate its acquisition prospects in a scenario where access to debt markets becomes limited. Therefore, Fitch sees lower degree of risk of shareholder friendly actions such as a special dividend, as it relates to its large cash balance. Nevertheless, the impact of Carmargo's aggressive growth strategy on credit protection measures remains a concern, which has been incorporated into the ratings. Fitch expects that the company will continue to manage its balance sheet to a targeted ratio of net debt to EBITDA in the 1.5 times - 2.5 range. At June 30, 2007, the ratio of total consolidated debt to EBITDA was 3.8, down from 4.2 in 2006. Net debt to EBITDA was 1.5, and EBITDA/gross interest expense was 1.9. The financial performance, industry and geographic diversification, as well as the robust dividend flow from core operating companies and minority equity stakes, mitigate the structural subordination risk associated with a holding company structure. At June 30, 2007, Camargo Correa had consolidated total debt of 5.7 billion Brazilian reais (BRL) of which approximately 45% was denominated in currencies other than the domestic currency. Of the total debt approximately BRL3.4 billion is at the holding company and its controlled subsidiaries (23.5% short-term) and BRL2.3 billion at non- controlled subsidiaries (11% short-term). The company had BRL3.4 billion of consolidated cash during the same period with about BRL2 billion at the holding company. The holding company maintained a substantial amount of offshore cash at the end of June (US$582 million). Consolidated short-term debt accounted for about 20% of total debt. Camargo Correa SA is one of the largest private industrial conglomerates in Brazil. The company is a holding company with interests in cement, engineering and construction, textiles, footwear and sportswear manufacturing. It also owns non- controlling equity interests in the energy, transportation (highway concessions) and steel businesses. During the last 12 months through June 2007, Camargo Correa had net sales of BRL9.2 billion and EBITDA of BRL1.4 billion. |
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