Fitch Affirms CAP S.A.'s IDR at 'BBB' & National Rating at 'AA-(cl)'; Outlook Stable

jueves 13 de marzo de 2014 12:42 GYT
 

(The following statement was released by the rating agency) CHICAGO/SANTIAGO, March 13 (Fitch) Fitch Ratings has affirmed CAP S.A.'s (CAP) foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and national scale rating at 'AA-(cl)'. The National Equity Rating has also been affirmed at First Class Level '1(cl)'. The Rating Outlook is Stable. A full list of rating actions is shown at the end of this release. KEY RATING DRIVERS: Conservative Approach to Leverage: CAP's ratings are supported by the company's continued focus on maintaining a conservative capital structure, as demonstrated by its five-year average net debt to EBITDA ratio of below 1.0x. CAP's year-end 2013 total debt-to-EBITDA ratio was low at 1.4x and its net debt-to-EBITDA ratio was 0.9x, considered robust given two consecutive years of record capex at USD975 million in 2013 and US$777 million in 2012. CAP is expected to increase its debt by around USD300 million to finance the last phase of its investment plan that will amount to approximately USD650 million during 2014. Fitch expects total debt to be in the region of USD1.4 billion for the company by the end of 2014. Fitch's Base Case assumptions for CAP indicate a net debt to EBITDA ratio of around 1.5x during the next two years, reducing to below 1.2x by 2016 following the end of this large investment period. Fitch's base case uses the agency's mid-cycle commodity assumptions for iron ore of USD110 per metric ton in 2014 and USD90 per metric ton from 2015 onward based on volumes of 15 million metric tons of iron ore in 2014 rising to 18 million metric tons from 2015 onward. The company's debt coverage ratios in 2013 also remained strong, as demonstrated by its FFO interest coverage ratio of 16x and EBITDA-to- fixed charges expense ratio of 15.4x. Comfortable Liquidity Profile: CAP's credit profile is also bolstered by its comfortable liquidity position. For 2013, the company held cash and marketable securities of USD309 million compared to total debt of USD936 million. Total debt increased from USD719 million in 2012 as a result of the expansionary capex program at CAP's iron ore mining division, Compania Minera del Pacifico (CMP). During the next three years, CAP has USD252 million of debt maturities due with USD61 million due in 2014, USD121 million due in 2015, and USD70 million due in 2016. Cash to short-term debt coverage is robust at 2.3x. CAP's long-term debt in 2013 was composed of bank loans (38%), local bonds (27%), project finance (26%) and international bonds (10%). CAP has access to additional liquidity in the form of uncommitted credit lines with local banks, should it be required. Iron Ore Production Continues Ramp-up at CMP: Iron ore pellet shipments of 12.1 million metric tons in 2013 were the same volume level as 2013, while the second phase of CMP's expansion project commenced. The company is expected export 15 million metric tons of iron ore pellets in 2014, increasing to 18 million metric tons from 2015. CAP generated EBITDA of USD665 million during the lower pricing environment of 2013 compared to USD798 million during 2012. CAP's total 2013 revenues were USD2.3 billion, of which USD1.4 billion was generated by CMP. This compares to 2012 revenues of USD2.5 billion, corresponding to negative 7% revenue growth in 2013. On a consolidated basis, CAP's EBITDA margins reduced to 29% in 2013 from 32% in 2012 due to the lower price environment and increased operating costs, namely for labor and energy in the Sistema Interconectado Central (SIC) region. CMP's operations comprise seven mines, including Cerro Negro Norte that is expected to begin production in May 2014, distributed across two regions in northern Chile. These operations are complimented by three ports at equal distances apart across the two regions, three plants - a pellet plant with current capacity of 5.2 million metric tons (mt) per year, a magnetite plant, and a desalination plant, and an 80km iron ore slurry pipeline that results in low logistical costs for the company. CMP accounted for 98% of CAP's consolidated EBITDA in 2013. CAP's steel subsidiary, Compania Siderurgica Huachipato (CSH) has operations in southern Chile, and CAP's steel processing division, Novacero, owns subsidiaries in Chile, Peru and Argentina. CSH had a negative 2% impact and Novacero contributed 4% to CAP's consolidated EBITDA in 2013. The company maintains its headquarters in Santiago. Robust Cash Flow Generation: The company generated strong cash flow from operations (CFFO) of USD754 million of in 2013, following a working capital inflow of USD144 million from FFO of USD610 million. The working capital benefit was due to improved inventories and payables terms. This compares to CFFO of USD952 million in 2012, a figure that also benefited from a sizeable working capital inflow of USD192 million. FCF for 2013 continued to be negative at USD451 million as a result of the ongoing investment program with record capex of USD975 million and dividends of USD230 million for the year. This compares to FCF of negative USD91 million following capex of USD777 million and dividend payments of USD265 million in 2012. Fitch expects the company to return to positive FCF generation in 2014 following the completion of the major investment and ramp-up of higher production volumes. CAP traditionally exhibits strong FCF during normal investment periods. Historically, the company has also demonstrated discipline with regard to dividend payments when operating conditions require more liquidity, as seen with the low dividend of USD94 million during difficult operating conditions of 2009. CAP is also able to scale back or delay its sizeable capex to bolster cash flow over the next two years, if required. Long Life Reserves & Resources; Strong Growth Potential & Competitive Cost: CAP has 8.63 billion mt of iron ore reserves (2.28 billion mt) and resources (6.35 billion mt) that equate to 57 years of mine life at an expected production rate of 15 million metric tons per year for 2014. The current investment plan projects production to reach over 18 million metric tons per year by the end of 2015, although further expansion to 30-40 million metric tons is possible following iron ore development projects that are currently under consideration. CMP's consolidated cash cost of iron ore pellet production during 2013 was USD56 FOB per ton (USD48.76 FOB per ton in 2012) at a production rate of around 12 million metric tons. For comparison, the cash cost for Samarco Mineracao S.A. (Samarco, LT IDR 'BBB'/Stable), a leading iron ore pellet producer owned by Vale S.A. (Vale, LT IDR 'BBB+'/Stable) and BHP Billiton (BHPB, LT IDR 'A+'/Stable) in Brazil, was around USD50/mt in 2013. CMP's cost increases occurred due to ramp-up periods for the new expansions and therefore could increase again at the start of operations of Cerro Negro Norte in May 2014. The company calculates that cash cost will remain at around USD50 FOB per ton when it reaches 18 million metric tons of production by the end of 2015. This low cost position is aided by CMP's iron ore slurry pipeline that is 80KM in length to transfer its iron ore to its ports. As a result, the combined logistical cost for CMP is low at around USD5 per ton. Another main contributing factor to CMP's low cost position is that the company produces magnetite ore. This allows for the iron (Fe) content to be separated more cheaply from the mine production with magnets, as opposed to hematite ore that requires more energy to extract the Fe content. Imports Erode Steel Profitability: CSH continued to have a negative impact on CAP's consolidated EBITDA during 2013 following a negative contribution in 2012 and a neutral contribution in 2011. The loss in steel business profitability is due to increased raw material and energy costs and the strategy to compete with cheaper steel imports. Chile has an open market which, combined with low freight rates, led to an increase in cheaper steel imports. CSH has managed to maintain a 50% domestic market steel share under this scenario, albeit with zero profitability, even while operating at full capacity. The company is also more active in the long steel segment, which is more profitable than flat steel, as most of the imported steel products are flat steel. As a result, the company recently announced it will exit the flat steel market. National Equity Rating Rationale: CAP has a long trading history with over 30 years in the Santiago stock exchange market, standing out as one of the largest domestic companies with a market capitalization of USD 2.3 billion at March 2014. The company's shares are highly liquid with a market presence of 100% and with last year average volume estimated at USD4.5 million as of March 2014. Equity indicators position CAP well in the level 1 category. RATING SENSITIVITIES: CAP is exposed to inherent risks within the mining and steel industries. A negative rating action - in either the form of a downgrade, Negative Outlook, or both - could result from deterioration in the company's capital structure that is not addressed in the short term. A sustained period of depressed iron ore prices and/or a significant loss of sales volumes due to a slowdown in Chinese iron ore consumption that increases the company's net debt to EBITDA ratio to above 2.0x on a sustained basis could also result in a negative rating action, as could a significant and prolonged deterioration in CAP's liquidity position and persistent negative FCF. Positive rating action on CAP could follow the successful execution of the company's capex program to increase iron ore output, while maintaining conservative credit metrics with an average net debt to EBITDA ratio below 1.0x. Fitch has affirmed the following ratings on CAP S.A.: --Foreign currency IDR at 'BBB''; --Local currency IDR at 'BBB'; --Yankee bonds due 2036 at 'BBB'; --National-scale at 'AA-(cl)'; --Local equity ratings Primera Clase Nivel 1(cl). --Local bonds No. 434 (serie F) at 'AA-(cl)'; --Local bonds No. 435 (serie D) at 'AA-(cl)'; --Local debt issuance program No. 591 at 'AA-(cl)'; --Local debt issuance program No. 592 at 'AA-(cl)'. The Rating Outlook is Stable. Contact: Primary Analyst Jay Djemal Director +1-312-368-3134 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 USA Secondary Analyst Alejandra Fernandez Director +562-499-33-23 Committee Chairperson Joe Bormann, CFA Managing Director +1-312-368-3349 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012); --'Evaluating Corporate Governance' (Dec. 12, 2012); --'Metodologia de Clasificacion de Acciones en Chile' (July 3, 2013); --'Initiating Mid-Cycle Metals Price Assumptions' (Sept. 14, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Evaluating Corporate Governance here Initiating Mid-Cycle Metals Price Assumptions here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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