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February 5, 2008 |
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USINAS SIDERURGICAS: Moody's Assigns Ba1 Local Currency Rating Moody's America Latina has assigned a Ba1 local currency rating and an Aa1.br rating on its Brazilian national scale to the BRL500 million non-guaranteed subordinated debentures due 2013 to be issued by Usinas Siderurgicas de Minas Gerais S.A. (aka Usiminas). Net proceeds from the debentures issuance will be used to partially fund the company's capex program. The rating outlook is stable. The Ba1 rating of the debentures on the global scale reflects the contractual and structural subordination of the debentures to the company's senior obligations and was notched below the Baa3 local currency issuer rating. Unlike other debt securities the debentures do not benefit from guarantees by Cosipa. The company's Baa3 local currency issuer rating is supported by its dominant position in the Brazilian flat-steel market, in addition to its globally competitive production costs, which reflect its large scale, almost full-capacity utilization, the proximity of its facilities to high-grade iron-ore reserves, efficient logistics, and partial self-sufficiency in coke and energy. As a low-cost producer, the compahy is well positioned to manage the cyclicality of the steel industry from an operational standpoint. Its continued balance sheet de- leveraging and accumulation of a substantive cash position over the past years underpins its disciplined financial management. It should also allow the company to finance its large capex program in the coming years with relatively little difficulty. Nevertheless, execution risk associated with the management of the large capital-expenditure program is a constraining factor on the rating. While Moody's expects the company to benefit from its ample access to the local and international capital markets to finance the program with long-term debt, the rating agency cautions that an eventual tightening of global liquidity could more severely affect issuers located in emerging economies. While the Ba1 global scale rating reflects the default and loss expectation on a global basis, the Aa1.br national scale rating reflects the standing of its credit quality relative to other domestic issuers. National Scale Ratings are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs in Brazil are designated by the ".br" suffix. NSRs differ from global scale ratings in that they are not globally comparable to the full universe of Moody's rated entities, but only with other rated entities within the same country. The stable outlook reflects Moody's expectation that Usiminas will continue to report healthy operating margins in the near term while executing its investment program with financial discipline, which includes the maintenance of leverage as measured by Total Adjusted Debt to EBITDA below 2.5, moderate payout of dividends and healthy liquidity. Given the significant challenges deriving from the company's capex program, an upgrade of its ratings is not foreseen in the near term. However, significantly weakened operating margins resulting in CFO less Dividends to Net Debt consistently below 20% or a substantive deterioration of its liquidity position as measured by cash balance plus unused committed credit facilities to short-term debt below 1.3 for an extended period could place downward pressure on Usiminas' ratings. Also, a significant increase in consolidated secured debt could negatively affect Usiminas' unsecured debt ratings. The company reported consolidated net revenues of BRL13.6 billion (US$6.7 billion) in the twelve months ended Sept. 30, 2007. Headquartered in Minas Gerais, Brazil, Usinas Siderurgicas de Minas Gerais SA is among the world's 20 largest steel manufacturing complexes, with a production capacity of approximately 10 million tons of steel. Usiminas System companies produces galvanized and non-coated flat steel products for the automotive, small and large diameter pipe, civil construction, hydro-electronic, rerolling, agriculture, and road machinery industries. Brazil consumes 80% of its products and the company's largest export markets are the US and Latin America. The company also sells in China and Japan. |
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