Moody's assigns a Baa3 rating to Votorantim Cimentos proposed notes due 2021; outlook stable

Moody's assigns a Baa3 rating to Votorantim Cimentos proposed notes due 2021; outlook stable
Published: 17 April 2014

Moody's Investors Service has assigned a Baa3 rating to the proposed up to EUR750m seven-year senior unsecured notes to be issued by Votorantim Cimentos SA. The outlook for the ratings is stable.

“Votorantim Cimentos' Baa3 ratings reflect primarily the company's leading position in the Brazilian cement market, strong credit metrics, adequate liquidity, as well as its large scale and integrated operations, that translates in leading market share and above-average EBITDA margins when compared to peers,” Moody’s said in a statement.  The ratings also take into consideration the company's affiliation with Votorantim Participações SA (Baa3; positive outlook) and its relevance to the parent company Votorantim Industrial S.A, as it contributes with 67 per cent of total EBITDA generation (in 2013).

Constraining the ratings are the still modest operating performance in the United States, Europe and Asia, partially offset by the positive fundamentals of the construction market in Brazil, supported by infrastructure investments and homebuilding (residential and commercial), according to Moody’s. Also, CADE (Brazil’s antitrust authority) commenced a hearing in early 2014 regarding an administrative proceeding from the Brazilian Economic Development Secretary (SDE) against the largest cement companies in the country, including Votorantim Cimentos, alleging price fixing and formation of cartel. “Although there is no formal deadline for a final decision, the process may result in administrative fines and asset divestiture, which may affect the company's liquidity position and future cash flow generation ability,” the rating’s agency said.

The proposed up to EUR 750 million bond issuance is part of the company's liability management strategy and will not affect its leverage metrics in the mid-term, Moody’s notes, as the majority of the net proceeds will be used to pay down debt coming due and to prepay existing debt.

The stable outlook reflects the company's ongoing improvement in operating performance, the gradual reduction in debt levels, and Moody's expectations that its organic expansion in Brazil will translate into stable consolidated EBITDA margins above 30 per cent. “Our belief that Votorantim Cimentos will continue to manage capex and dividends distribution on a prudent way, in order to sustain its credit profile, also support the stable outlook,” Moody’s states.

Part of the Votorantim Group, Votorantim Cimentos SA (Votorantim Cimentos) is the 8th largest cement company worldwide in terms of annual installed cement production capacity, with 53.9Mta as of 31 December  2013. In 2013, Votorantim Cimentos reported consolidated revenues of BRL12.1bn (US$5.6bn converted by the average foreign exchange rate for the period). The company has operations in North and South America, Europe, Africa and Asia.