Fitch Ratings has affirmed Tunisian building materials group Societe des Ciments d'Enfidha (SCE) National Long-term rating of 'BBB(tun)' with Stable Outlook and National Short-term rating of 'F3(tun)'. However, Fitch simultaneously withdrew the ratings because it no longer has sufficient information to maintain them. Accordingly, Fitch will no longer provide ratings or analytical coverage for SCE.
Key ratings drivers
Leading market position
Fitch notes that SCE demonstrated a capacity to sustain its leading market position and growth in 2014, a challenging year, and Fitch expects this will remain the case in 2015. Local cement consumption has been rather resilient to the economic and political environment following the Tunisian revolution in 2011. However, most of the demand was driven by households and, to a lesser extent, by residential and commercial projects.Now that the transition period is over and a new government was elected in late 2014, Fitch expects demand to be driven increasingly by infrastructure projects.
Consistently low leverage
SCE has paid back its long-term loans, and in the absence of major investments Fitch does not expect its credit metrics to change in the foreseeable future. SCE enjoys sufficient headroom for its rating, which enables it to withstand increased sector risks.
FFO-adjusted net leverage stood at -0.3x at end-2014 (-0.4x at end-2013) and Fitch expects the net cash position will be sustained. Strong Liquidity SCE continues to post positive free cash flow (FCF), supported by healthy trading performance and minimal capex. Consequently, readily available cash increased to around TND50m in 2014 (TND44m in 2013) and compares favourably with short-term debt of TND10m.
SCE continues to have access to TND12m of available undrawn bank credit lines and added a new revolving credit facility of TND5m in 2014. Fitch expects SCE to maintain strong liquidity. The effect on FCF of a high dividend pay-out is likely to be offset by minimal investments.
Muted capex offsets high dividends
SCE has reduced its investments to a minimum. Fitch's rating base case assumes capex/revenues ratio to be maintained at around five per cent over the next three years to cover maintenance capex. Conversely, distributions to shareholders have increased and Fitch expects a pay-out ratio at around 1x over the next two years. These two developments should result in neutral FCF.
Relationship with shareholder
Fitch rates SCE on a standalone basis despite Cementos Portland Valderrivas indirectly owning 88 per cent, due to weak legal and strategic ties according to our Parent and Subsidiary Rating Linkage criteria. Given the financial difficulties of the parent, our forecasts for SCE factor in a high proportion of FCF being distributed in dividends to the parent.