Author: AtlanticIS

• Despite InterCement’s recent asset sales and operations overhaul, performance and leverage should remain weak through 2019 and 2020.
• Cement demand in Brazil, where the company has idled nearly 50% of its capacity would remain flat through 2019. In the meantime, the company’s Argentine operations are struggling with the economic downturn and political uncertainties.
• On July 24, 2019, S&P Global Ratings downgraded the Brazil-based cement producer to ‘B’ from ‘B+’ on global scale and to ‘brA’ from ‘brAA’ on national scale. We also lowered our debt rating to ‘B’ from ‘B+’.
• The stable outlook reflects that the company’s leverage metrics would probably remain close to 5.0x through 2019, improving to 3.5x-4.0x towards 2023. We factor in some level of financial assistance from its parent company, Mover, in case of need.

SAO PAULO (S&P Global Ratings) July 24, 2019–The downgrade reflects InterCement’s likely lower earnings and EBITDA for the next 12 months due to higher risks to the company’s competitive advantages. After the disposal of the Portuguese and Cape Verde operations last year, InterCement’s footprint has shrunk and remains concentrated in Brazil and Argentina, where operating conditions are subpar.

The cement market in Brazil is recovering at a sluggish pace in 2019. We expect InterCement to sell close to 8 million tons of cement in 2019, compared with 12.5 million in 2014 and 2015. Lack of market confidence and significant infrastructure projects are the main factors are behind the market slowdown. In 2020, conditions may slightly improve for long-term investment decisions depending on how the market perceives mid-term risks.

The Argentine subsidiary, Loma Negra, currently generates 55% of total cash flows. Despite volatile economic conditions, with currency swings and high inflation pressuring costs, Loma Negra’s solid market position and the government’s ambitious infrastructure plan allowed the subsidiary to maintain profitable operating margins. InterCement’s main project, L’Amali II, would increase operating efficiency at the Argentine division starting in 2020, but political risks may erode the subsidiary’s capacity to generate hard currency in the future, if economic problems exacerbate under the next administration.

After several changes at Mover subsidiaries’ portfolio, InterCement now accounts for 80%-90% of the group’s EBITDA. Apart from InterCement’s financial obligations, the group also guarantees Estaleiro Atlantico Sul’s (EAS) debt (about R$660 million) and is ultimately responsible for the fine stemming from the leniency agreement fine determined at the E&C subsidiary level (about R$800 million). After the sale of its share at CPFL Energia S.A., Mover repaid almost all of its corporate debt and has currently about R$1.8 billion in cash. Mover is also has a 15% minority interest in CCR S.A., with current market value of about R$4.5 billion.

In December 2018, Mover decided to inject about R$300 million into InterCement. The latter returned the proceeds to Mover after the sale of the Portuguese assets.

Buenos Aires City, December 04, 2017 — Moody’s Latin America today assigned a B1 local currency global scale corporate family rating (CFR) to Mercado Libre S.R.L.(ML), the Argentina subsidiary of Mercado Libre Inc (MELI, not rated). At the same time, Moody’s assigned a Ba3 local currency global scale rating and an Aaa.ar national scale rating to the up to ARS 4,250 million bank credit facility with Banco de la Nacion Argentina. This is the first time Moody’s rates ML. The rating outlook is stable.

RATINGS RATIONALE

ML’s B1 corporate family rating reflects its well-recognized online retail brand name in Latin America and its leading competitive position in multiple segments and strong operating performance, particularly in its online platform marketplace, which accounts for the majority of the company’s operating income. The ratings are also supported by ML’s significant cash flow generation, low leverage and good liquidity profile which includes cash and short-term investments exceeding USD 95 million at December 31, 2016. With over 5.948 employees and USD 844 million in revenues across the region, Moody’s acknowledges that MELI, ML’s parent company, is the largest internet retailer in Latin America and has a sizable international presence through seven international websites that it operates in Brazil, Argentina, Mexico and Chile, among others.

Given the still limited online business penetration in Latin America, Moody’s believes that online retail business will continue to experience strong growth over the next several years supporting ML’s progress. Moody’s believes ML is well positioned to benefit in Argentina from the consumer trend of increasingly purchasing online as opposed to purchasing in physical formats. However, Moody’s expects online retailing will become more competitive as numerous traditional retailers turn their focus to their online presence and capabilities, which could slow ML growth rates in the long term. The rating acknowledges that ML has other growth opportunities from new geographies it can enter along with new products it can launch in its existing geographies.

Mitigating the company’s credit strengths are its limited size and scale and the fierce competition coming from larger players in the online market that could pressure market share in its main core business.

ML’s Ba3 and Aaa.ar ratings on the bank credit facility with Banco de la Nacion Argentina, one notch above the B1 global scale rating, reflects the strength of the credit line that will be fully secured by ML’s credit card receivables.

The stable outlook reflects Moody’s expectation that ML will be able to maintain its strong market position and regionally well recognized brand name. It also reflects Moody’s expectation that ML will maintain solid operating performance while preserving a good balance sheet and liquidity profile.

ML’s ratings could be upgraded if the company further increases materially its size and scale amidst expected positive growth prospects for the online retail business, while maintaining its strong business and financial profile and a solid liquidity.

ML’s ratings could be downgraded should ML’s market position or operating performance deteriorate to the extent that its credit metrics are negatively impacted and/or should it no longer maintain good liquidity. Quantitatively, ML’s ratings could be downgraded if RCF/net debt fell below 20% or interest coverage was sustained below 2 times.

Headquartered in Buenos Aires, Argentina, Mercado Libre S.R.L is the Argentine branch of Mercado Libre Inc (MELI). MELI is the largest online commerce ecosystems in Latin America and the 7th globally measured by unique visitors. With presence in 18 countries, including Argentina, Brazil, Mexico, Colombia, Chile, Venezuela and Peru, MELI is the leading e-commerce and commercial technology solutions company in Latin America. Based on unique visitors and page views, MELI has a leading market position in most of the countries in which it operates, including Argentina. Their platform in each country is designed to provide users with a complete portfolio of services to facilitate commercial transactions, which includes seven integrated e-commerce services: (i) MercadoLibre Marketplace, (ii) MercadoLibre Classifieds Service, (iii) MercadoLibre advertising program, (iv) MercadoShops online web store solution, (v) MercadoEnvios shipping service, (vi) MercadoPago payments solution and (vii) MercadoCredito.

New York, March 08, 2018 — Moody’s Investors Service (Moody’s) assigned a Baa3 Issuer Rating to Peru LNG S.R.L. (PLNG) and its proposed USD940 million in senior unsecured notes. Proceeds from the notes will be used to refinance existing corporate bonds together with bank debt. The outlook on the ratings is stable.

This is the first time that Moody’s assigns ratings to PLNG.

RATINGS RATIONALE

The Baa3 ratings on PLNG and its USD940 million in proposed senior unsecured notes are supported by its solid credit metrics and financial policies, no volume risk, low supply risk, high facility utilization factor, limited competition risk, minimum foreign exchange risk, strong shareholders support and the high relevance of the company to the Peruvian’s energy industry and trade balance. On the other hand, the ratings also consider the company’s small and single operational asset base as well as its exposure to Liquefied Natural Gas (LNG) price risk, which bring up operating and financial risk.

The proposed notes will have 6 years of grace period and mature in 2030, after the LNG Sale and Purchase Agreement with Shell International Trading Middle East Limited (SITME) expires, in 2028. The mismatch between the maturity of the notes and the expiration of the delivery contract to the off-taker represents a risk that is however mitigated by the payment amortizing feature of the proposed notes. Moody’s estimates that, in 2028, PLNG would owe about USD238 million related to the 2030 notes, which the company would cover with accumulated cash flow from operations.

PLNG has adequate liquidity pro forma for the proposed notes and debt repayment. Moody’s estimates that, after the company issues the notes and repay existing debt, cash on hands will be about USD50 million which favorably compares to USD30 million of minimum cash. Moody’s also estimates that PLNG will generate cash from operations close to USD108 million over the next 18 months. The company’s financial obligations in the period will be about USD42 million (interest expenses) and it will not pay dividends; in turn, capital expenditures will be limited to USD23 million in 2018, mostly for scheduled maintenance purposes.

The stable rating outlook reflects Moody’s expectation that PLNG will sustain its low business risk profile, maintain solid financial policies, and be able to reduce its financial leverage towards management’s target of 3.5-4.0x debt/EBITDA by year end 2019.

PLNG’s Baa3 ratings could be upgraded if it manages to decrease leverage efficiently, as per EBITDA to gross debt, below 3.5 times on a sustainable basis as well as if maintains an interest coverage above 6.5 times, as per EBITDA to interest expense.

PLNG’s Baa3 ratings could be downgraded if its interest coverage, as per EBITDA to interest expense, falls to below 3 times with limited prospects of a quick turnaround. In addition, a deterioration of the company’s liquidity profile and an increase in leverage above to 6.5 times could lead to a rating downgrade.

Founded in 2003 to build, own and operate the first natural gas liquefaction plant in South America, PLNG delivered the first LNG cargo to its sole off-taker, SITME on June 22, 2010. PLNG operates a 4.45 mmtpa liquefaction plant located in Pampa Melchorita (Cañete), a marine terminal, and a 408 km pipeline that transports natural gas from the prolific Camisea fields (Cusco, Peru). The natural gas for the production of PLNG is supplied from Camisea gas fields pursuant to two separate Gas Supply Agreements with Block 56 and Block 88 for a total of 4.2TCF. Peru LNG is 50% owned by Hunt Oil Company (B1 stable), 20% by Royal Dutch Shell Plc (Aa2 stable), 20% by SK Innovation Co. Ltd (Baa1 stable) and 10% by Marubeni Corporation (Baa2 negative). Moody’s estimates that, in 2018, the company’s revenues and assets will reach close to USD500 million and USD2.4 billion, respectively, while adjusted leverage ratio will hover at about 4.6 times debt/EBITDA.

As a first-time issuer in the cross-border bond market, Peru LNG drew keen attention from global investors when it issued a high-yield bond last March. At $940 million, priced at 5.375%, it was the largest private sector bond ever issued from Peru.

The securities featured a 9.25-year average life with 12 semi-annual amortizing payments starting in 2024. The company, which operates a natural gas liquefaction plant, used the proceeds to refinance the outstanding debt it drew upon to build the plant. Its success reflected a number of factors. For starters, investors appreciated the company’s recent investment grade ratings from Moody’s, S&P and Fitch.

The company was also coming to market when there was a lack of supply from Peru. Peru LNG would be only the second Peruvian company to come to market in 2018. Peru LNG also conducted a road show in the US, Latin America and Europe, meeting 92 key investors through one-on-one meetings, events and conference calls. In the end, the order book neared $2.5 billion from 115 investors, an oversubscription rate of 2.6 times.

Initial price talk had been set at the mid-5.000%. Investor appetite allowed Peru LNG to reduce the pricing by 12.5 bps through execution.