Fitch Ratings has affirmed the following ratings of Brazilian cement producer, Cimento Tupi SA's (Tupi):
• Foreign currency Issuer Default Rating (IDR) at 'B'
• Local currency IDR at 'B'
• Senior Unsecured Notes Due 2018 at 'B/RR4';
• Long-Term National Rating 'BBB-(bra)'.
Fitch said Tupi's 'B' ratings reflect its small business position, execution risks related to the change in its business model, and the volatility of its cash flow generation due to the cyclicality of the cement industry. The ratings incorporate the company's success at raising US$150m to fund its expansion plan. The ability to complete this project within the budget and on time (by 1Q13) will be key to avoiding pressure on the ratings. Tupi's low liquidity position going forward and working capital refinancing risks are also factored in the ratings.
Cimento Tupi is currently implementing a new operating model. This is a result of the termination of a supply agreement effective April 2012 for slag from steel company Companhia Siderurgica Nacional SA (CSN), which itself is increasing its presence in cement. Tupi's strategy is to expand its unit at its Pedra do Sino plant, which will significantly reduce the company's reliance on slag and increase total overall nominal cement production capacity to 3.2Mta by 2013 from 2.4Mt. The success of this expansion is crucial to the company's ongoing activities, Fitch notes. Without this expansion, Fitch estimates that the company's nominal annual capacity would be reduced to 1.6Mt.