CHICAGO & MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the Foreign Currency and Local Currency Issuer Default Ratings (IDRs) of Grupo Ferroviario Mexicano (GFM) at 'BBB' and the national scale and debt ratings of Ferrocarril Mexicano S.A. de C.V. (Ferromex) at 'AA+(mex)'. The Rating Outlook is Stable.
Ferromex's ratings are supported by the strong legal and operational ties with its parent, GFM, which owns 100% of Ferromex, and follows Fitch's parent and subsidiary criteria. GFM is in turn owned 74% by Grupo Mexico (Fitch LT IDR 'BBB'; Stable Outlook) and 26% by Union Pacific. The ratings are also supported by the company's leading position within the Mexican railroad transportation sector with a 53% market share of railway load distribution (million tons-km). This compares to the next largest domestic competitor, Kansas City Southern de Mexico (KCSM, LT IDR 'BB'; Stable Outlook) with 36% market share.
GFM has a strong standalone credit profile. For the latest 12 months (LTM) to Sept. 30, 2011, the company generated USD390 million of EBITDAR with an EBITDAR margin of 30.1%. This compares to USD431 million of EBITDAR and an EBITDAR margin of 36.9% in 2010, with the LTM figure being lower due to the three months taken from the end of a poor 2009. The total debt to EBITDAR and net debt to EBITDAR ratios for the period were 1.9 times (x) and 1.7x, respectively. Total debt to EBITDA and net debt to EBITDA ratios were 1.2x and 0.9x, respectively. Funds from operations (FFO) was at US280 million, although the company exhibited negative free cash flow of USD94 million due to capex of USD284 million and dividends of USD100 million.
GFM's liquidity is strong with USD99 million of cash and marketable securities as of Sept. 30, 2011 compared to short-term debt of USD32 million. The company's cash to short term debt ratio subsequently stood at 3.1x, and cash + cash flow from operations to short-term debt ratio at 12.3x for the period. GFM benefits from strong growth potential in Mexico due to low rail transport penetration. In Mexico, this figure is around 25% with cargo predominantly transported via trucks and roads. This low penetration compares well with over 40% penetration of railroad transportation in the U.S. and Canada and indicates large scope to grow the sector in Mexico.
Grupo Mexico's main transportation holding company, Infraestructura y Transportes Mexico (ITM) is the parent company for GFM and Infraestructura y Transportes Ferroviarios (ITF), which in turn owns 100% of Ferrosur. Ferrosur has 9% market share in Mexico with its railroad network located in the south-east of the country. In early 2011, the anti-trust legal proceedings surrounding Grupo Mexico's ownership of Ferrosur were successfully resolved in Grupo Mexico's favor. ITM has been consolidating Ferrosur's results since first quarter 2011 (1Q'11) on a pro-forma basis, and formally consolidating since 2Q'11. This positive outcome will allow the company to conduct an IPO of the 'new look' ITM in the international market at a future date, pending negotiations with minority shareholders regarding final ownership positions.
Ferromex possesses Mexico's largest railroad with a track network of 8,111km, covering approximately 70% of Mexico's territory. The company connects with five gateways across the Mexico-U.S. border and has access to four seaports on the Pacific Ocean and two seaports on the Gulf of Mexico. In comparison, Ferrosur has 1,813km of track networks. Together, Ferromex and Ferrosur, via ITM, have a combined market share of 62% in the Mexican railroad transport sector.
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. 13, 2010);
--'Parent and Subsidiary Rating Linkage' (July 14, 2010);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Evaluating Corporate Governance' (Dec. 16, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Evaluating Corporate Governance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581405
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