MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Mexichem, S.A.B. de C.V.'s (Mexichem) ratings as follows:
--Foreign currency Issuer Default Rating (IDR) at 'BBB-';
--Local currency IDR at 'BBB-';
--Long-term national scale rating at 'AA(mex)' ;
--USD350 million senior notes due 2019 at 'BBB-';
--MXN2,500 million Local Certificados Bursatiles due 2016 at 'AA(mex)'.
The Rating Outlook is Stable.
Mexichem's ratings are supported by the company's business profile as a leading vertically integrated chemical and petrochemical company in Mexico, with important market shares and presence in Latin America, United States and Japan. The ratings are also supported by Mexichem's competitive cost structure and solid financial profile, characterized by positive free cash flow generation in recent years. Fitch expects that the company's leverage will remain at or below management's target of a net debt-to-EBITDA ratio below 2.0 times (x). The ratings also consider Mexichem's aggressive growth strategy through acquisitions and green field projects, strong competition in all markets where it operates, as well as the cyclical nature of the chemical and construction industries.
Mexichem's performance during the current economic cycle has remained strong and reflects the company's vertical integration that serves different segments along the value chain and allows it to focus its development on value-added products. The company's positive free cash flow generation is also a result of its leading market position and pricing power, increased product and geographic diversification, as well as cost and working capital controls. During 2010, Mexichem completed acquisitions of INEOS Fluor, as well as Polycid and Plasticos Rex. In addition, in early 2011 Mexichem integrated plastic compounds producer, Alphagary.
Mexichem operations are divided into three production chains: chlorine-vinyl, fluorine, and integrated solutions (basically polyvinyl chloride-PVC pipes and fittings), which mainly target the construction, agricultural and industrial sectors. The company's vertical integration acts to a degree as a barrier to entry in some of its markets. Management's strategy continues to focus on adding value to the main raw materials source of the company, salt dome and fluorspar. Future growth will be driven by the consolidation of current operations and acquisitions to complement the company's business portfolio.
Mexichem's revenues are closely linked to the U.S. dollar: 40% of consolidated sales are denominated and paid in U.S. currency, 30% is referenced to the dollar and paid in local currencies, and the remaining are domestic. Mexichem has gained economies of scale and geographic scope, and to date exports its products to over 50 countries and has manufacturing facilities in 16 countries. In addition, Mexichem has developed in-house technology and has a low production cost given that its manufacturing facilities benefit from favorable labor and geographic conditions.
The company's credit protection measures remained strong and stable. For the latest 12 months (LTM) ended Sept. 30, 2011 Mexichem's EBITDA-to-interest expense coverage was 7.4x similar to full year 2010; total debt-to-EBITDA for the LTM ended Sept. 30, 2011, was 2.0x and net debt-to-EBITDA was 1.3x, in line with management target for the latter of 2.0x.
The company's liquidity is adequate and refinancing risk is low. For the LTM ended Sept. 30 2011, the company generated USD805 million of EBITDA and approximately USD139 million of free cash flow before acquisitions; total debt at the end of the third quarter was approximately USD1.4 billion, with cash and equivalents at the same date of approximately USD 480 million. Short term represents only 19% of total debt or approximately USD270 million. Recently, Mexichem signed a USD1.0 billion revolver bank facility which will be used to refinance debt maturing in 2012 and support investment requirements.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research :
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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