Fitch Affirms Cresud's IDR at 'B-' and National Scale at 'AA-(arg)'
BUENOS AIRES -- January 9, 2013
Fitch Ratings has affirmed the ratings of Cresud S.A.C.I.F. y A. (Cresud) as
--Foreign Currency Issuer Default Rating (IDR) at 'B-'; Outlook Negative;
--Local Currency Issuer Default Rating (IDR) at 'B-'; Outlook Negative;
--USD60 million senior unsecured bullet notes due in 2014 at 'B-/RR4';
--National Scale at 'AA-(arg)'; Outlook Stable
--National Scale Senior Unsecured Notes at 'AA-(arg)';
--Equity Rating at Category 1.
Cresud's foreign currency (FC) IDR is constrained at 'B-' due to the 'B-'
country ceiling of Argentina. Cresud's 'B-' local currency (LC) IDR is
constrained by above-average risks associated with operating in the real
estate segment in Argentina and the volatile cash flow of its agribusiness
division, which is subject to weather conditions and commodity prices.
The Negative Rating Outlooks that have been assigned to the FC and LC IDRs are
in line with those assigned to Argentina's sovereign ratings and reflect the
high degree of uncertainty about the business climate and economic conditions
that should persist throughout 2013.
Cresud's ratings consider its position as a leading company in the real estate
and agribusiness sectors in Argentina. Cresud owns 64.5% of IRSA ('B+' local
currency IDR by Fitch), a leading real estate company in Argentina dedicated
to real estate development, office rentals, and shopping mall operations
through Alto Palermo (APSA), which is 94.9% owned subsidiary of IRSA
Inversiones y Representaciones S.A. (IRSA).
During the fiscal year ended June 30, 2012, IRSA accounted for all of Cresud's
consolidated EBITDA and 66% of its consolidated assets. Cresud has an
important portfolio of farms in Argentina and also has a presence in Bolivia,
Paraguay, and in Brazil through its 39.64% stake in BrasilAgro. The results
from the agribusiness segment were negatively affected during the fiscal year
ended June 30, 2012 due to poor weather conditions in Argentina.
Fitch links the ratings of Cresud and IRSA. Cresud's 'B-' local currency IDR
is notched down from IRSA's 'B+' LC IDR because of the structural
subordination of its debt and its weaker stand-alone financial profile. This
linkage reflects factors such as strong strategic and operational ties and the
fact that IRSA's upstream dividends represent a significant part of Cresud's
cash flow from operations. The dividend flow to Cresud from IRSA is expected
to be relatively stable. During 2012, Cresud received dividends of USD14
million in June from IRSA and USD24 million in November.
The ratings also reflect moderate consolidated leverage, as well as manageable
liquidity, as a result of unencumbered assets and land that could be sold.
Regarding the real estate industry, the emphasis of Fitch's methodology is on
portfolio quality, diversity, and the size of the asset base. Cresud's
consolidated portfolio of real estate assets is strong with USD 1.2 billion of
book value as of Sept. 30, 2012. This value would be higher at market values.
These assets are mostly unencumbered and provide Cresud and its direct and
indirect subsidiaries with a degree of financial flexibility.
On a consolidated basis, Cresud had USD641 million of sales and generated
USD208 million of EBITDA during the fiscal year ended June 30, 2012. These
figures compare with USD 858 million of consolidated debt, resulting in a net
debt-to-EBITDA ratio of 3.6x and an EBITDA-to-interest expense ratio of 2.3x.
Long-term debt accounts for 71% of total debt and includes USD420 million of
senior notes at APSA and IRSA that mature between 2017 and 2020.
Consolidated EBITDA consists of USD160 million from the shopping mall segment
developed by APSA and USD50 million from IRSA (including office rentals,
developments, and hotels). The weak performance of the agribusiness segment
resulted in a negative EBITDA of USD3 million. These results were mainly in
the crop segment and are explained by an important drought during the 2011 -
2012 season and losses from holdings and derivatives in BrasilAgro that
carried out its hedging transactions. Fitch expects an improvement in the
profitability of the agribusiness segment for the current period.
The company's stand-alone debt reached USD239 million as of Sept. 30, 2012.
Short-term debt accounted for 31% of Cresud's stand-alone total debt. During
2012, the company extended the average life of its debt through the issuance
of approximately USD 115 million of senior unsecured notes in the local
markets with maturities between 18 and 36 months. Cresud's debt is supported
by its asset portfolio. Its main assets include participations in IRSA and
BrasilAgro, its portfolio of farms, and its inventory of crops and livestock.
A significant portion of Cresud's assets could be sold in traded markets,
providing Cresud with additional liquidity to support its short-term debt
POTENTIAL RATING AND OUTLOOK DRIVERS:
Fitch expects that Cresud will manage its balance sheet to a consolidated net
debt-to-EBITDA ratio of around 4.0x. Any significant increase in Cresud's
leverage ratio would weaken credit quality and could result in a negative
rating action. Cresud's ratings could be affected by an upgrade or downgrade
of the Argentine country ceiling of 'B-'.
Additional information is available '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 (Fitch's Approach to Rating Entities
within a Corporate Group Structure)' (Aug. 10, 2012);
--'IRSA Rating Action Commentary' (Jan. 9, 2013);
--'Alto Palermo S.A. Rating Action Commentary' (Jan. 9, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
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Fernando Torres, +5411 5235 8124
Sarmiento 663, 7 - Buenos Aires - Argentina.
Gabriela Catri, +5411 5235 8129
Cecilia Minguillon, +5411 5235 8123
Elizabeth Fogerty, New York, +1 212-908-0526
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