Fitch Affirms Cementos Pacasmayo rating

Fitch has affirmed ratings of Peruvian cement producer Cementos Pacasmayo. The ratings Outlook is Stable. The following ratings have been affirmed:

• Foreign currency Issuer Default Rating (IDR) at 'BBB-'
• Local currency IDR at 'BBB-'
• US$300m senior unsecured notes at 'BBB-'.

Fitch said the ratings reflect the company's solid business position as the only cement producer in Peru's northern region. This position has resulted in high margins, low leverage and solid liquidity. The small size of the cement market in the north, as well as the difficulty of logistics in this region, has limited the impact of imports. Further factored into the ratings is the favorable outlook for Peru's cement industry over the medium term driven by Peru's positive macro-economic and business environment.

The Stable Outlook reflects Fitch's view that Pacasmayo will maintain the positive trend in its cement operating results based upon its market position coupled with a favorable business and macroeconomic environment in its area of influence. The ratings consider that the company's free cash flow (FCF) will be negative between 2014-2016 due to the high level of expenses associated with building a new cement plant in Piura.

The Stable Outlook also factors in the expectation that the company's gross adjusted leverage, measured by the total adjusted debt-to-EBITDAR ratio, for its cement operations will remain between 2.25x and 2.50x and that the company will maintain an adequate liquidity and manageable debt profile in the short- to medium-term.

Cementos Pacasmayo is the dominant player in Peru's northern region, where it provides essentially all the cement being consumed. During 12 months to the end of September 2013, the company sold 2.3Mt maintaining its historical market share in Peru's cement industry of around 22 per cent.

Pacasmayo is expected to continue to benefit from solid business fundamentals, Fitch noted. The Peruvian economy is forecast to grow by about six per cent per year in 2013 and 2014, after growing by seven and six per cent during 2011 and 2012, respectively. During the last 10 years (2002-2012), the company's cement sales volume grew at a compound annual growth rate (CAGR) of around 11 per cent. Sales have been driven by the rapid expansion of the construction sector.