Moody's places Votorantim Cimentos' Baa3 ratings under review for downgrade

Moody's Investors Service has placed Votorantim Cimentos SA's Baa3 senior unsecured rated debt and issuer rating under review for downgrade. The rating action follows Moody's rating action on 9 December  2015 that placed Brazil's Baa3 government bond rating under review for downgrade. The review will focus on the result of Brazil's government bond rating review process and on Votorantim Cimentos' credit metrics, liquidity, foreign-exchange exposure and its links with the Brazilian economy.

"The review of Votorantim Cimentos' ratings was prompted by Moody's rating action on 9 December 2015 that placed Brazil's Baa3 government bond rating under review for downgrade", explained Moody's VP Senior Analyst, Marcos Schmidt.

"The review will focus on the result of Brazil's sovereign rating review process and on Votorantim Cimentos' correlation to the Brazilian economy and its impacts on the company's credit metrics, liquidity and foreign-exchange exposure," added Schmidt.

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 into leading market share and above-average EBITDA margins when compared to global peers. The ratings also take into consideration the company's affiliation with Votorantim Participações SA (Baa3 RUR-Down) and its relevance to the parent company Votorantim Industrial SA, as it contributes with 57 per cent of its total EBITDA generation.

Constraining the ratings are the still modest operating performance in the United States, Europe and Asia, economic slowdown and corruption investigations affecting the heavy construction market in Brazil, and CADE's (Brazil antitrust authority) decision to rule against the largest cement companies in the country, including Votorantim Cimentos, which was convicted for price fixing and cartel formation and fined BRL1.5bn (US$387m). As part of the sentence the company would also be obliged to sell certain assets. The company denied its involvement in cartel practices and appealed to the imposed sanctions, but it is uncertain how long the appeal process will take.