BUENOS AIRES, Argentina--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings on Celulosa Argentina S.A. (Celulosa):
--Foreign currency Issuer Default Rating (IDR) at 'B';
--Local currency IDR at 'B';
--National scale IDR at 'A(arg)'.
The Rating Outlook is Stable.
Celulosa's 'B' ratings reflect the company's market position as an integrated pulp, paper and forest products manufacturer in Argentina and Uruguay. While very small in size compared to its peers in the region, Celulosa has a strong market share in its domestic markets, and has a diversified and stable customer base. The company benefits from import tariffs and other agreements, such as a bilateral trade agreement between the governments of Argentina and Brazil that limits Brazilian paper imports and reduces competition in the domestic market.
Celulosa's small size makes it more vulnerable to industry cycles due to lower economies of scale and its operating results are exposed to high levels of volatility in international pulp prices. The company is also exposed to double-digit inflation in Argentina and other direct and in-direct sovereign related risks, including devaluation and refinancing risks.
Current market conditions prevent Celulosa from rolling out its growth strategy. The company's strategy is to increasingly integrate its operations with the forestry segment and reduce its reliance on third-party suppliers of raw materials (eucalyptus wood). As part of this strategy, the company plans to invest in the forestry division as well as develop new business lines. As of today, 95% of wood purchases are done on a spot basis, exposing the company to prices and volume risks. The company has production assets in Argentina and Uruguay, the latter through its subsidiary Fanapel.
Financial results came under pressure over the last year. For the last 12 months (LTM) ended Feb. 29, 2012, Celulosa generated revenues and EBITDA of USD 391 million and USD58 million, respectively. These figures compared to USD 355 million of sales and USD 73 million of EBITDA as of Feb. 28, 2011. Although Celulosa's sales reflected a price increase of 10%, EBITDA margins deteriorated to levels which are expected to continue to impact the company's cash generation over the near term. Celulosa generated USD14 million of CFO for the LTM as of February 2012. The company used this cash flow and new debt issuances to finance capex and preferred dividends.
Leverage is low for the rating category. Celulosa's debt levels are currently below targeted levels of USD 200 million, and leverage is expected to increase to 3.6x from the current level of 3.0x assuming the company is able to access the international capital markets to fund its capex plan. Given the negative fundamentals of the industry and adverse financial conditions in the international capital markets, Fitch does not expect the company will increase its debt levels in the near term. As of Feb. 29, 2012, Celulosa had USD173 million of debt, an increase from USD156 million at FYE May 2011. Celulosa's EBITDA is expected to remain at approximately USD60 million during FYE 2012.
Celulosa's liquidity is tight and exposes the company to refinancing risk. As of February 2012 Celulosa had USD3.7 million of cash and marketable securities and USD85 million of short-term debt. Historically, the company has had a high concentration of its financial debt in the short term and has consistently been able to refinance these trade lines of credit.
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' dated Aug. 12, 2011;
--'Liquidity Considerations for Corporate Issues' dated June 12, 2007.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Liquidity Considerations for Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666
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