Fitch Ratings has downgraded the foreign currency Issuer Default Rating (IDR) and senior unsecured rating of Votorantim Cimentos to 'BBB-' from 'BBB'. The rating outlook remains negative, said Fitch Ratings, and reflects the significant deterioration in the Brazilian economy resulting in weakening cement fundamentals over the medium term.
The challenging domestic market coupled with Votorantim's aggressive capital expenditure plans over the next 24 months will result in further deterioration of the company's credit profile, the ratings agency added. Partially mitigating these factors are VCSA's robust liquidity, diversified operations, and strong relationship with its parent, Votorantim SA.
The decision by Brazil's antitrust authority, CADE, to impose a BRL1.5bn fine on VCSA and the forced sale of certain ready-mix assets for alleged cartel practices poses further uncertainty for the company over the coming years. VCSA, along with the other cement companies charged, have appealed the sanctions in the Brazilian courts. During 2015, VCSA was awarded an injunction suspending CADE's ruling until a final judgment is reached. Fitch expects the timing of the appeals process to likely take several years.
The Brazilian cement market declined approximately 10 per cent to 64.9Mt in 2015 from 71.7Mt in 2014 due to a slowdown of infrastructure projects and bagged cement sales amidst the contraction in the country's economy. Further deterioration in cement volumes are expected due to increased unemployment, high real estate inventories, and limited construction projects during 2016 and 2017.
Fitch Ratings suggest that a recovery of cement volumes will likely materialise by 2018, but growth in volumes will be sluggish as cement volumes are projected to remain below the level sold in 2014 for at least the next four years.