July 12, 2017 / 1:41 PM / a year ago

Fitch Rates Cencosud's Proposed Notes 'BBB-(EXP)'

(The following statement was released by the rating agency) NEW YORK, July 12 (Fitch) Fitch Ratings has assigned an expected senior unsecured rating of 'BBB-(EXP)' to Cencosud S.A.'s (Cencosud) proposed senior unsecured notes of USD850 million. The unsecured notes are unconditionally guaranteed by the majority-owned Cencosud Retail S.A. Proceeds from the 10-year offering will be used to repay existing bank and bond debt (including the tender offer of the 2021 and 2023 notes), extending the company's debt maturity profile KEY RATING DRIVERS Diversified Business Model: Cencosud's ratings reflect its strong business profile as a geographically diversified, multi-format retailer in South America. It enjoys critical size in the food segment and benefits from a significant presence in the non-food retail segment. The company's stable EBITDA margin and high level of unencumbered assets related to its real estate segment also are viewed positively. Constraining factors include its high exposure to Argentina (26% of adjusted EBITDA) and the poor performance by its operations in Brazil and low margin in Colombia. Expected Deleveraging: Cencosud's adjusted gross leverage, as measured by total adjusted debt/EBITDAR (excluding banking) was 4.6x as of Dec. 31, 2016. Fitch expects the company to reduce its consolidated adjusted gross leverage (excluding banking) towards 4x in 2018 due to increased EBITDA and asset divestments. The company's adjusted debt ratios for the retail and shopping malls business remained broadly stable at about 4x and 5.1x respectively. Fitch anticipates non-core asset disposals that would accelerate deleveraging in 2017. Neutral FCF: Fitch expects Cencosud to generate neutral to slightly negative free cash flow (FCF) due to improved EBITDA (efficiencies) and lower dividends at FYE17. In FYE16, the group generated negative FCF due to lower cash flow from operations and higher dividends. The company paid an extraordinary dividends of about USD220 million in 2016. Fitch assumes capex of about USD500 million in 2017 compared to USD317 million in 2016, as the company is growing organically and investing in IT and omnichannel. Cencosud is contemplating capex of USD2.5 billion between 2017 and 2020. Margin Trend Is Key: Cencosud's main operational challenges are to grow its businesses and improve margins, despite the weak consumer environment in the region. This is a direct result of slow economic growth in Latin America and high inflation in markets such as Argentina. Fitch expects the company to resume single-digit revenue growth due to the gradual improvement of the economic environment in the regions in which the company operates, notably Argentina and Brazil. KEY ASSUMPTIONS --High-single-digit revenue growth in 2017; --EBITDA of 7.3%; --Gross adjusted gross leverage - including retail, shopping malls and banking operations - toward 4x in FYE18; --Fitch does not factor in the potential spin-off of shopping malls; --Capex of USD500 million in 2017. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a negative rating action include: --Sustained negative FCF; --Group EBITDA margin consistently below 7%; --Lease-adjusted gross leverage - excluding banking operation (Banco Peru) sustained above 4.5x; --Leased-adjusted gross retail leverage (including shopping malls) above 4x. Conversely, Fitch may take a positive rating action if a combination of the following factors takes place: --Consistently positive FCF generation, reflected in FCF margin around 3%-5%; --EBITDA margin consistently above 8%; --Lease adjusted gross leverage - excluding banking (Banco Peru) below 3.5x; --Lease-adjusted gross retail leverage (including shopping malls) below 3x; --Decreased exposure to Argentina's sovereign risk. LIQUIDITY Liquidity is adequate due to the company cash position, its good access to capital markets and manageable debt maturities. Cencosud had cash and cash equivalents, respectively, of about USD522 million and USD553 million in short-term debt. As of March 31, 2017, roughly 67% of consolidated financial debt was denominated in U.S. dollars; 77.4% of total financial debt was covered using cross currency swaps or other exchange rate hedges. Considering the effect of the cross currency swaps, as of March 31, 2017, the company's exposure to the U.S. dollar was 15.3% of the total debt. Fitch currently rates Cencosud S.A. as follows: --Long-Term Foreign Currency Issuer Default Rating (IDR) 'BBB-'; --Long-Term Local Currency IDR 'BBB-'; --USD750 million unsecured notes due in 2021 'BBB-'; --USD1.2 billion unsecured notes due in 2023 'BBB-; --USD650 million unsecured notes due in 2025 'BBB-; --USD350 million unsecured notes due in 2045 'BBB-'. Contact: Primary Analyst Johnny Da Silva Director +1-212-908-0367 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Tatiana Sclabos +56 9 7453 3728 Committee Chairperson Joseph Bormann, CFA Managing Director +1-312-368-3349 Date of Relevant Rating Committee: May 16, 2017 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Solicitation Status here Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below