Fitch Affirms Votorantim at 'BBB'
CHICAGO -- March 27, 2013
Fitch Ratings has affirmed the ratings of Votorantim Participacoes S.A.
(Votorantim) as follows:
--Foreign and local currency Issuer Default Ratings (IDRs) at 'BBB'
--National scale rating at 'AAA(bra)'
The Rating Outlook of Votorantim is Stable.
Fitch has also taken related rating actions on several of Votorantim's direct
and indirect subsidiaries. A complete list of these actions follows at the end
of this press release.
Votorantim's 'BBB' and 'AAA (bra)' ratings reflect the company's strong global
positions in the cement, mining, and market pulp industries. These businesses
are organized under Votorantim's industrial subholding company, Votorantim
Industrial S.A. (VID). Votorantim's solid market positions are viewed to be
sustainable due to the company's leading market positions and low cost
structures, which allow Votorantim to generate positive cash flow from
operations during cyclical downturns. The ratings are constrained by debt
levels that are high for the rating category.
KEY RATING DRIVERS
Excellent Cement Business
The cement division is the backbone of VID, accounting for 41% of its revenues
and 60% of its EBITDA during 2012. Brazil is the key market for company.
During 2012, Votorantim sold 24.4 million tons of cement in Brazil and 3.0
million tons of cement in other markets - namely the United States and Canada.
In Brazil, which is the fourth largest global cement market, Votorantim is the
largest cement producer with a market share of 35%. During 2012, the EBITDA of
Votorantim's cement division was BRL3.2 billion, an increase of 11% from the
prior year. The growth in EBITDA was primarily due to a 4% increase sales
volumes in the Brazil market as well as a 4% in prices. The Brazilian economy
is projected to grow by 3.0% during 2013, which should translate into growth
in demand for cement by 7% -- about 4.5 mm tons. Votorantim is well positioned
to capture the growth in the market due to its expansion of capacity by 8 mm
tons between 2011 and 2012. Votorantim's global reach will extend to a total
of 14 countries during 2013 due to the incorporation of Cimpor's assets in
Spain, India, China, Turkey, Morocco, Tunisia and Peru at the end of 2012.
These assets will add an additional 16 million tons of capacity.
Strong Market Pulp Position
Through VID, Votorantim owns 29% of Fibria, which is the world's largest
producer of market pulp with 5.250 million tons of bleached eucalyptus kraft
market pulp capacity. Fibria is among the lowest cost producers of pulp
globally. Fibria's leading position is viewed as sustainable due to its
ownership of 970,016 hectares of land in Brazil upon which it has developed
562,995 hectares of eucalyptus plantations. The nearly ideal conditions for
growing trees in Brazil makes these plantations extremely efficient by global
standards and gives the company a sustainable advantage in terms of the cost
of fiber and transportation costs between forest and mills.
Strong Growth Prospects in Mining
VID owns 50.06% of Milpo, which is a low-cost polymetals miner based in Peru
with zinc accounting for 38% of its 2012 revenues, followed by copper
concentrates (29%), copper cathodes (8%), silver (20%), lead (4%) and gold
(1%). Milpo is ranked by Wood Mackenzie as the fourth lowest cost producer of
zinc globally on a C1 cash cost basis of USD0.28 per pound in the third
quarter of 2012. This allows the company to generate positive cash flow from
operations during periods of low zinc prices. Milpo had eight years of mine
life and 22 years of reserves and resources as of 2011 according to the Joint
Ore Reserves Committee (JORC) Code. Milpo has been granted a total of 357,777
hectares of mining concessions in Peru and Chile, of which approximately 2,975
hectares, or 1%, are currently being exploited.
Leverage Increased in 2012
The main subsidiaries of Votorantim that are not part of VID are the company's
50%/50% orange juice joint venture and Votorantim Finance (VF), which is the
holding company for Banco Votorantim, which is 49.9% owned by Banco do Brasil
(BdB) and 50.1% owned by Votorantim. Analytically, Fitch strips away the
financial metrics of VF from Votorantim's consolidated figures and focuses on
the standalone credit metrics of VID. During 2012, VID's EBITDA declined to
BRL4.9 billion from BRL5.4 billion during 2011, while its net leverage
increased to 3.7x from 3.3x. Key reasons for the increase in leverage were:
the weakening of the Brazilian real versus the U.S. dollar, which increased
VID's debt as reported in reais by BRL2.350 billion; the consolidation of
Cimpor's cement assets in Spain, India, China, Turkey, Morocco, Tunisia and
Peru in exchange for the company's 21.21% stake in that company on Dec 21,
2012, which resulted in the consolidation of about Euro 340 million of debt
and no EBITDA; and, declining aluminum, zinc and nickel prices, along with the
weak operational performance of the company's aluminum subsidiary, Companhia
Brasileira de Aluminio (CBA).
Leverage Expected to Decline in 2013
Fitch projects VID's EBITDA should increase to BRL5.6 billion in 2013 from
BRL4.9 billion in 2012. Net leverage should decline to 3.3x from 3.7x absent
asset sales and/or the issuance of equity and any significant weakening of the
Brazilian real versus the U.S. dollar. Cement should be the catalyst for VID's
EBITDA growth due to strong demand in Brazil and the addition of the Cimpor
assets. In terms of pulp, Fitch projects that VID's proportional consolidation
of Fibria's EBITDA should grow to BRL500 million from BRL450 million and that
Fibria will continue to lower debt levels. Regarding metals, the outlook is
low single digit pricing increases.
For Milpo, Fitch projects the EBITDA should remain relatively stable at about
BRL400 million. For the non-Milpo related aluminium, nickel and zinc
businesses EBITDA should climb to BRL1.0 billion from BRL600 million. Some of
the recovery will be due to better performance by the aluminium business. The
outlook for steel is somewhat favorable as well due to expanding volumes and
tougher barriers against imports. For this division, Fitch believes EBITDA
will grow to BRL 0.8 billion from BRL0.6 billion. Free cash flow should remain
neutral to slightly positive, which will not result in a material amount of
net reduction. Votorantim is expected to take additional steps in an attempt
to get leverage at or below its 2.0x ND/EBITDA target.
VID had BRL7 billion of cash and marketable securities as of Dec. 31, 2012 and
BRL25 billion of total debt. The company also has a BRL3.4 billion revolving
credit facility that has not been drawn. VID faces amortizations of BRL2
billion during 2013. VID has strong market access in both Brazil and abroad.
Factors that could lead to consideration of a Negative Outlook or downgrade
include a change of management's strategy with regard to returning net debt /
EBITDA to less than 2.0x at the VID level. A prolonged downturn in demand and
prices for commodities or a sharp downturn in the Brazilian economy could also
result in a negative rating action, as would a weakening of the company's
position in the Brazilian cement industry. Factors leading to the
consideration of a Positive Outlook or upgrade are lower absolute and relative
debt levels or a stronger and less correlated product portfolio.
Fitch has affirmed the following ratings:
Votorantim Industrial S.A. (VID)
--Foreign currency IDR at 'BBB'
Votorantim Cimentos S.A. (VCSA)
--Foreign currency IDR at 'BBB'
--2041 and 2017 guaranteed notes at 'BBB'
Companhia Brasileira de Aluminio (CBA)
--Foreign currency IDR at 'BBB'
--2019 and 2021 guaranteed notes at 'BBB'
Voto-Votorantim Overseas Trading Operations IV Limited
--Foreign currency IDR at 'BBB'
--2020 notes at 'BBB' .
The Rating Outlook for these Issuers is Stable
The 2041 notes are guaranteed by Votorantim and VID, while the 2019 and 2021
notes are guaranteed by VCSA and Votorantim. VCSA's and CBA's ratings have
been linked to VID's rating through Fitch's parent and subsidiary rating
criteria. VID conducts its cement operations through VCSA and its
subsidiaries, while CBA produces primary aluminum in Brazil. These companies
are all strategic to VID and have the same financial management team.
Voto-Votorantim Overseas Trading Operations IV Limited is an offshore issuers
of debt that has been guaranteed by VPAR and the industrial subsidiaries.
Fitch simultaneously affirms and withdraws the foreign currency IDR of
Voto-Votorantim Overseas Trading Operations III Limited at 'BBB'. This 2014
notes of this issuer were prepaid during 2012.
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. 10, 2012);
--'National Ratings - Methodology Update' (Jan. 19, 2011).
Applicable Criteria and Related Research
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
National Ratings Criteria
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Joe Bormann, CFA, +1 312-368-3349
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602 USA
Gisele Paolino, +55-21-4503-2600
Ricardo Carvalho, +55-21-4503-2600
Elizabeth Fogerty, +1 212-908-0526
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