Fitch Upgrades Grupo Ferroviario Mexicano to 'BBB+' & Ferromex to 'AAA(mex)'
CHICAGO & MONTERREY -- December 03, 2012
Fitch Ratings has upgraded the Foreign Currency and Local Currency Issuer
Default Ratings (IDRs) of Grupo Ferroviario Mexicano (GFM) to 'BBB+' from
'BBB' and the national scale and debt ratings of Ferrocarril Mexicano S.A. de
C.V. (Ferromex) to 'AAA(mex)' from 'AA+(mex)'. The Rating Outlook is Stable.
The rating upgrades for GFM and Ferromex follow the upgrade of Grupo Mexico's
long-term IDR on Dec. 3, 2012 to 'BBB+' with a Stable Outlook. Ferromex's
ratings are supported by the strong legal and operational ties with its
parent, GFM, which owns 100% of Ferromex. GFM is in turn owned 74% by
Infrestructura y Transportes (ITM) and 26% by Union Pacific. ITM is 74.9%
owned by Grupo Mexico. The rating linkages follow Fitch's parent and
The ratings are also supported by the company's leading position within the
Mexican railroad transportation sector with a 58% market share of railway load
distribution (calculated by million tons-km). This compares to the next
largest domestic competitor, Kansas City Southern de Mexico (KCSM, long-term
IDR 'BBB-'; Stable Outlook) with 32% market share.
GFM has a strong standalone credit profile. For the latest 12 months (LTM) to
Sept. 30, 2012, the company generated USD424 million of EBITDAR with an
EBITDAR margin of 36%. This compares to USD398 million of EBITDAR and an
EBITDAR margin of 30.4% in 2011. The improvement over the LTM period was due
to collecting the benefits of 2011 capex program to improve operational
efficiencies. These included longer trains and more fuel efficient
locomotives. Longer trains helped to reduce the total number of trains
required to be operated during the period, but with higher cargo volumes,
further improving margins.
Fitch expects GFM to produce EBITDAR margins above 30% from 2013-2015 under
its base case scenario, with net debt to EBITDAR ratios remaining below 2.0x.
FCF is also expected to remain positive after capex and dividends, reflecting
normal operating years of 2008 to 2010, with 2011 being a high capex year.
GFM has exhibited strong cash flows since 2008, with positive FCF every year
except 2011 when it recorded negative FCF of USD139 million as a result of the
large capex of USD284 million to improve efficiency and dividends of USD100
million. For the LTM to Sept. 30, 2012, GFM's FCF was USD81 million after
capex of USD161 million and dividends of USD62 million, indicating a return to
positive FCF territory for the end of the year. Total 2012 capex for GFM is
expected in the region of USD224 million.
GFM's total debt to EBITDAR and net debt to EBITDAR ratios for the period were
1.8x and 1.4x, respectively, an improvement to 1.9x and 1.7x, respectively, in
2011. The company generated FFO of USD277 million for the LTM period compared
to USD255 million in 2011 with FCF of USD81 million following capex of USD161
million and dividends of USD62 million.
GFM's liquidity is strong with USD173 million of cash and marketable
securities as of Sept. 30, 2012 compared to short term debt of USD32 million.
The company's cash to short-term debt and cash + CFFO to short-term debt
ratios were subsequently sturdy at 5.4x and 14.7x, respectively, for the
Grupo Mexico's main transportation holding company, Infraestructura y
Transportes Mexico (ITM) is the parent company for GFM and Infraestructura y
Transportes Ferroviarios (ITF), which in turn owns 100% of Ferrosur. Ferrosur
has 9% market share in Mexico with its railroad network located in the
south-east of the country.
ITM benefits from strong growth potential in Mexico due to low rail transport
penetration. In Mexico, this figure is currently around 27% with cargo
predominantly transported via trucks and roads. This low penetration compares
well with over 40% penetration of railroad transportation in the U.S. and
Canada and indicates large scope to grow the sector in Mexico.
Ferromex possesses Mexico's largest railroad with a track network of 8,111km,
covering approximately 70% of Mexico's territory. The company connects with
five gateways across the Mexico-U.S. border and has access to four seaports on
the Pacific Ocean and two seaports on the Gulf of Mexico. In comparison,
Ferrosur has 1,813km of track networks. Together, Ferromex and Ferrosur, via
ITM, have a combined market share of 67% in the Mexican railroad transport
Ferromex is on track to achieve EBITDAR margins in the 34% range for 2012 due
to the benefits of its cost efficiency program with a LTM EBITDAR margin of
32% as of Sept. 30, 2012. Ferromex's EBITDAR margin was 29% in 2011 and 32% in
2010. The company is focused on phasing out its older fleet with new, more
economical locomotives with leases of between 8-10 years and options to buy.
Ferromex's LTM EBITDAR grew to USD422 million from USD377 million in 2011,
reflecting these measures. The company's cargo exhibits a diversified product
mix of which agricultural cargo accounted for 24% of LTM Sept. 30, 2012
revenues. The next most important categories were diesel surcharge (15%),
industrial (10%), mineral (9%), automotive (9%), chemical (6%), intermodal
(6%), energy (6%), steel (6%), cement (4%), car-hire (2%) and other (3%).
GFM and Ferromex's ratings are tied to those of their ultimate controlling
shareholder, Grupo Mexico. Future rating actions will continue to mirror those
taken on Grupo Mexico.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug 12, 2012);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Evaluating Corporate Governance' (Dec. 13, 2011);
--'Country Ceilings'(Aug. 12, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
National Ratings Criteria
Evaluating Corporate Governance
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