Fitch Upgrades Gruma's Ratings to 'BB+'; Outlook Stable
MONTERREY, Mexico -- December 11, 2013
Fitch Ratings has upgraded the ratings of Gruma, S.A.B. de C.V. (Gruma) as
--Long-term Foreign Currency Issuer Default Rating (IDR) to 'BB+' from 'BB';
--Long-term Local Currency IDR to 'BB+' from 'BB';
--USD300 million perpetual bonds to 'BB+' from 'BB'.
The Rating Outlook is Stable.
The rating upgrade reflects Gruma's focus to debt reduction and improved
profitability leading to a decline in its gross leverage. Fitch incorporates
in the upgrade that the company will continue with its commitment to strength
its capital structure and gradually decrease its total debt to EBITDA ratio to
a level close to 2.5x in the following 12 months. The rating upgrade also
considers the company's improved debt maturity profile and higher cash flow
KEY RATING DRIVERS
Solid Business Profile:
Gruma's ratings are supported by its solid business profile as one of the
largest producers of corn flour and tortillas in the world, strong brand
equity, and good operating performance. The ratings also incorporate the
company's geographic diversification and hard currency revenue with nearly 52%
of its total sales generated by Gruma Corporation with operations in the U.S.
and Europe. The company's ratings reflect its exposure to the volatility in
prices of its main raw materials, corn and wheat, and the uncertainty derived
from the nationalization of the Venezuelan operations, which are excluded from
our credit analysis.
Fitch expects that Gruma's EBITDA margin improvement to levels around 11% to
12% during 2013 will remain stable in the mid-term as a result of its strategy
to prioritize profitable operations combined with a favorable outlook for the
prices of its main raw material, corn and wheat. Gruma's pricing initiatives,
better product sales mix, rationalization of SKUs and stable raw material
costs associated to hedging initiatives, have mainly contributed to improve
its gross profit margin. In addition, the company has optimized its marketing
and administrative expenses to further support its increased profitability.
During the nine months ending Sept. 30, 2012, excluding the operations of
Venezuela, EBITDA margins improved to 11.6% from 7.6% for the same period of
Reduction in Leverage:
Fitch estimates Gruma's total debt to EBITDA to be close to 2.5x in the
following 12 months from a combination of EBITDA growth and debt reduction. As
of Sept. 30, 2013, the company has reduced its total debt balance by USD180
million to reach USD1,372 million. Gruma's total debt to EBITDA estimated by
Fitch, excluding the operations of Venezuela, for the last 12 months as of
Sept. 30, 2013, was 2.8x times. This level of leverage was significantly lower
than 4.3x estimated by Fitch in December 2012 after closing the debt financed
acquisition for USD450 million of the 23.16% equity stake that Archer Daniels
Midland Company (ADM) had in Gruma.
Manageable Debt Profile:
Fitch incorporates in the ratings the improvement in Gruma's debt maturity
profile and financial flexibility coming from the debt refinancing of USD400
million related to the transaction with ADM. The company's short-term debt as
of Sept. 30, 2013, represented around 8% of its total debt while its next debt
amortizations in 2014 and 2015 are USD74 million and USD72 million,
respectively. Gruma's next significant debt maturity of USD468 million is in
2016, which the company expects to refinance during 2015.
Gruma's liquidity position is adequate supported by its positive funds from
operations (FFO) generation and access to credit lines. Cash and marketable
securities were MXN1.7 billion at Sept. 30, 2013, that combined with an annual
FFO generation of around MXN3.7 billion are sufficient to cover its short-term
debt obligations of MXN1.5 billion and expected capital expenditures
requirements of approximately MXN1.9 billion in 2014. The company also
maintained USD130 million of available committed credit lines as of Sept. 30,
Fitch expects that Gruma will continue to use any excess of cash generation to
reduce leverage. FFO is expected to maintain its trend in 2014, reaching
levels above MXN3.5 billion which combined with the company's strategy to
optimize net working capital requirements and maintain capital expenditures
below historical levels will contribute to free cash flow to be used towards
Positive rating actions may result from a combination of debt reduction,
stronger operating results, and stable cash flow generation that leads to a
sustained improvement in the company's gross leverage ratio close to 2.0x.
Also, sustained profitability across the business cycle and debt amortization
aligned with cash flow generation will be viewed as positive to credit
quality. Conversely, negative rating actions could occur if the company's
gross leverage or liquidity position deteriorates significantly as a result of
operational factors, adverse market conditions or debt financed acquisitions.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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