Category: Corporates

Peru, February 8, 2022 – Compania de Minas Buenaventura S.A.A. (Buenaventura, B1 stable) announced that it reached an agreement to sell its 43.65% stake in Minera Yanacocha S.R.L (Yanacocha) to Newmont Corporation (Baa1 stable) for $300 million net of payments and additional $100 million contingent to increases in gold and copper prices. Additionally, Newmont will transfer its ownership interest in La Zanja and contribute $45 million related to closure costs.

The transaction is credit positive because the company will use net proceeds, together with $100 million in dividends received from its 19.58% stake in Sociedad Minera Cerro Verde S.A.A. (Cerro Verde), to prepay its $275 million syndicated facility and fund growth capex.

In July 2021, Buenaventura issued $550 million in senior unsecured notes that were used to pay in full the Peruvian Tax Authority (SUNAT’s) tax claim. The additional debt combined with operational disruptions pushed Moody’s adjusted leverage to a 8.9 times peak in December 2020. Upon the announced debt repayment, we expect leverage to be around 4.7 times by 2022, which is still high for the ratings category. The company has publicly committed to reduce leverage and the B1 rating incorporates our expectation that Buenaventura will continue its deleveraging trend through a combination of operational improvements during 2022 and debt reduction.

The growth capex, estimated between $80 million and $120 million in 2022, will be used to fund San Gabriel project, although it would start contributing significant EBITDA from only 2023-24 onward. San Gabriel has an estimated annual production capacity of 120,000-150,000 ounces of gold. Buenaventura has faced a number of operational challenges and disruptions including lower ore grades, lower recoveries, limited availability of transportation vehicles and reduced workforce because of the pandemic. Additionally, in September 2021, Buenaventura announced that the local community surrounding the Uchucchacua mine started a strike. Uchucchacua generates negative EBITDA and free cash flow and we expect this to be the case through 2023.

Upon debt repayment the company’s capital structure will comprise the $550 million senior unsecured bond due in 2026 and other bank facilities totaling $813 million, from $1,109 million at year-end 2021. Buenaventura’s liquidity will be adequate, supported by the company’s around $288 million in cash as of September 2021, net proceeds from the proposed transaction and dividends from its affiliate, Cerro Verde. These funds positively compare with the company’s expected negative free cash flow at around $30 million which includes $250 million of total capex, no dividends and no material debt amortization.

Headquartered in Lima, Peru, Buenaventura is a mining company engaged in the exploration, mining and processing of gold, silver, copper, zinc and lead in Peru. Following this transaction, Buenaventura has five wholly owned and two majority-owned mines, as well as a 19.58% stake in Cerro Verde, one of the world’s largest copper mines and a 40.1% stake in Coimolache, which owns the Tantahuatay gold mine that Buenaventura operates. Buenaventura is controlled by the Benavides family (27% of the voting stock), and is listed on the New York Stock Exchange and the Lima Stock Exchange. For the 12 months that ended September 2021, the company generated $883 million in revenue and Moody’s adjusted leverage was 5.4x.

Credit Outlook: 14 February 2022. Pg. 6
Moody’s Investors Service

Panama, September 15, 2021 – Cable & Wireless Communications Limited (C&W, Ba3 negative) and America Movil, S.A.B. de C.V. (AMX, A3 negative) announced plans for AMX to sell its Claro Panama S.A. unit to C&W for $200 million. This transaction is positive for all participants, including the three remaining telecom competitors in Panama – C&W, Cable Onda, S.A. (Ba2 stable) and Digicel Group Holdings Limited (Caa2 stable) – because the deal would take AMX out of the Panama market, and allow a more rational competition.

The sale would also allow each competitor to hold more 5G cellular capacity, although a 5G auction date has yet to be set. AMX’s sale of Claro Panama would consolidate C&W as one of the largest operators in Panama.

The transaction has no material effect on the operators’ credit metrics, but it is credit positive for C&W, helping the company to consolidate its competitive position in Panama, C&W’s main market. C&W will generate 27% of its revenue in Panama, up from 22% today, and the new assets will represent around 6% of C&W’s consolidated revenue and around 4.4% of its EBITDA, as per our own estimates.

C&W plans to finance the acquisition using incremental borrowings and C&W own cash, which totaled $534 million as of June 2021. While the additional debt won’t be material, C&W’s debt/EBITDA ratio of 5.3x as of June 2021, including our standard adjustments, is high for the Ba3 rating category. We expect the company it to gradually return to pre-pandemic levels in 2022-23, although risks remain high.

The transaction will give C&W an improved market position in Panama with roughly half of the market share. We expect that the consolidated company will generate an EBITDA margin in the high-30 percent range, improving as it extracts synergies and improves its leverage.

Buying Claro Panama effectively gives C&W 760,000 more subscribers in Panama, on top of its roughly 1.6 million only in Panama, and 3.3 million subscribers, on a consolidated basis, as of June 2021.

Increasing competition since 2018 and later the coronavirus pandemic, have hampered C&W’s performance in recent years, costing the company some of its prepaid subscribers and reducing its average monthly revenue from subscriptions. A new marketing campaign in 2019 and continued upgrades to its network helped C&W’s curb its subscriber losses. But Panama’s restrictions on movement in 2020 because of the pandemic, which the government relaxed throughout the year but then reinstated in the first quarter of 2021, hurt C&W’s average revenue per user and its EBITDA. Those results came despite the company’s efforts to contain expenses and its addition of 61,100 mobile subscribers in the first quarters of 2021.

The transaction also benefits AMX, giving the Mexican telecom conglomerate $200 million that it plans to use to repay debt and further advance toward its net leverage ratio target of 1.50x from 1.64x as of June 2021. Claro Panama currently represents less than 1% of AMX’s consolidated revenue. AMX will retain the Claro Panama towers but plans to spin them off, along with most of its roughly 35,000 towers in Latin America, probably by early 2022.

C&W’s purchase of Claro Panama follows a pattern of telecom consolidation in Panama. In 2019 Cable Onda acquired Telefonica Moviles Panama, then the country’s mobile market leader. Panama fast-growing economy, with one of the largest growth rates per capita in the region, offers telecom operators there good opportunities for growth in a very competitive market.

Credit Outlook: 20 September 2021. Pg. 6
Moody’s Investors Service

Brazil, June 30, 2021 – Companhia Siderúrgica Nacional (CSN, Ba3 stable) announced that its fully owned cement subsidiary CSN Cimentos S.A. had entered an agreement to purchase Elizabeth Cimentos S.A. and Elizabeth Mineração Ltda. (collectively, Elizabeth Cimentos) for BRL1.08 billion ($220 million). The deal is credit positive for CSN because the additional capacity in the cement segment will help diversify its cash flow and foster growth, while hardly affecting its balance sheet and liquidity. The acquisition requires customary approvals, including from Brazil’s antitrust authority CADE.

CSN had a robust cash position of BRL18.2 billion at the end of March 2021, including its shares of Usinas Siderurgicas de Minas Gerais (Usiminas, Ba3 stable), and will report historically low leverage and generate free cash flow north of BRL10 billion in 2021, offsetting leverage and liquidity risks coming from this transaction. Additionally, the acquisition could be self-financed at CSN Cimentos’ level, assuming the successful conclusion of the subsidiary’s initial public offering (IPO), which will generate an estimated BRL2.5 billion and give CSN additional flexibility to pursue growth while also reducing debt during the peak of the steel and iron ore industries’ cycle this year.

The transaction involves the acquisition of a plant with an annual production capacity of 1.3 million tons that serves Brazil’s northeastern markets in the states of Paraíba and Pernambuco. This plant complements CSN Cimentos’ existing 4.7 million production capacity in Brazil’s southeast region in the states of Minas Gerais and Rio de Janeiro.

Pro forma for the transaction, CSN’s cement revenue has the potential to increase by about 30%, and the share of the cement segment in CSN’s consolidated results would increase to 3% of total revenue from 2% currently. Although still small relative to the group’s overall size, a larger footprint and scale in the cement business will provide a buffer to CSN’s consolidated cash flow during future downturns in the steel and iron ore markets, which contribute 51% and 42% to the company’s total revenue, respectively.

CSN’s adjusted EBITDA increased to BRL14.4 billion in the 12 months that ended March 2021 from BRL6.3 billion in 2019, and adjusted leverage declined to 2.4x from 4.8x on positive industry momentum. We expect CSN’s adjusted leverage ratios to decline to around 1x-2x over the next 12-18 months and to be within the 3.0x-4.5x range over time based on a range of price scenarios for iron ore 62% Fe of $70-$100 per ton and normalized steel operations. Net leverage, assuming a recurring BRL10 billion cash position, will fall to below 1x in 2021 and settle around 2-3x over time. Leverage ratios could strengthen depending on how much debt reduction the company pursues this year.

CSN’s credit quality and liquidity have improved materially since late 2020 amid a robust increase in cash and cash flow coming from strong steel and iron ore operations, and several liquidity-enhancing initiatives carried out by the company. These include the IPO of its mining subsidiary, the around BRL4 billion reduction in gross debt so far this year, the sale of about half of its preferred shares in Usiminas for BRL1.3 billion, the issuance of $850 million in new 10-year notes to tender the $925 million notes maturing in 2023, and the ongoing refinance of BRL3.4 billion in debt with Banco do Brasil S.A. and Caixa Economica Federal that come due in 2021-22.

Still, CSN’s track record of aggressive financial policies, including a highly leveraged capital structure, appetite for growth and dividend requirements to service debt payments at the parent level are key risks. However, we acknowledge that CSN is proving to be more conservative in its financial management and in preserving its credit quality even while pursing opportunistic acquisitions.

The acquisition will also help to consolidate Brazil’s fragmented cement market, improving the competitive landscape by rationalizing competition. Brazil has an annual installed cement production capacity of about 102 million tons, and had an annual consumption of 60 million tons in 2020. That is an improvement from the 2018 trough of 53 million tons, but still below the 2014 peak of 73 million tons peak. The sector has struggled with sequential contractions in cement demand since 2014, which led domestic cement prices to drop to a low of BRL25 per 50 kilogram bag in 2017-19, from nearly BRL35 in 2011.

Cement demand in Brazil was hard hit by lower residential construction derived from the country’s economic recession in 2015-16 and a retrenchment of public and private investments. In 2020, cement demand grew 10.9% from the previous year because of the strong performance of the self-construction segment and a pick-up of real estate construction activity, which together contribute to around 80% of the total cement consumption in Brazil. For 2021, cement demand growth will soften, reflecting less disposable income available for self-construction with the phase out of government support to individuals but still firm residential construction activity.

Credit Outlook: 5 July 2021. Pg. 8
Moodys