Fitch Affirms Masisa S.A.'s Ratings
CHICAGO -- June 26, 2014
Fitch Ratings has affirmed the ratings of Masisa S.A. (Masisa) as follows:
--Foreign and local currency Issuer Default Ratings (IDRs) at 'BB';
--USD300 million senior unsecured 9.5% notes due 2019. The notes are
unconditionally guaranteed by Forestal Tornagaleones and Masisa Forestal;
--National scale rating of Bond Line No. 356, No. 439, No. 440, No. 560, No.
724 and No. 725 at 'A-(cl)';
--Long term National Scale rating at 'A- (cl)';
--Equity rating at 'Primera Clase Nivel 3(cl)'.
--National short term rating at 'N1(cl)'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
HIGH EXPOSURE TO ARGENTINA AND VENEZUELA's ECONOMIES
Masisa's ratings are constrained by the company's large exposure to Venezuela
and Argentina. Combined these markets represented 53% of Masisa's consolidated
EBITDA as of the last 12 months (LTM) to March 31, 2014. Challenges in these
markets include non-stable currencies, political interference, as well as
foreign currency transfer restrictions. Masisa's net debt-to-EBITDA ratio of
3.6x as of March 31, 2014 is above the 3.4x the company averaged during the
past five years. Net leverage excluding operations in Venezuela and Argentina
SOUND BUSINESS POSITION
The ratings of Masisa incorporate its sound business position within Latin
America as a leading producer of wood boards with 3.4 million cubic meters of
installed capacity. The company's operations are concentrated in Chile,
Brazil, Argentina, Venezuela, and Mexico. Masisa has Placentro retail stores
throughout the region and commercial offices in Peru, Colombia and Ecuador,
and exports to countries outside the region such as North America. An
additional credit consideration is the company's continued use of equity to
partially fund growth. Increases of equity have occurred in 2003, 2005, 2009
FORESTRY ASSETS ARE IMPORTANT CREDIT CONSIDERATION
The ratings further incorporate Masisa's ownership of 193,000 hectares of
plantations in South America, which along with its forestry land, had a book
value of USD608 million as of June 2014. This value is on a pro forma basis,
after the sale of 32,500 hectares of plantations in Chile to an 80/20 joint
venture between Hancock Natural Resource Group (Hancock) and Masisa. Masisa
received USD205 million during April 2014 and partially used to prepay debt.
This sale reduced the company's net debt as of March 31 2014 to USD562
million, from USD767 million. As a result, net leverage ratios should decrease
to 2.6x and 5.5x (excluding EBITDA generated by Venezuela and Argentina).
Through this transaction, Masisa transferred the forestry assets in question
to a joint venture company based in Chile, with Hancock owning 80% of the
shares and Masisa owning the remaining 20%. Masisa and Hancock entered into a
long-term fiber supply agreement which gives Masisa the option to purchase
wood fiber. During 2013 Masisa sourced 3% of its Chilean industrial fiber
needs from these forests.
EBITDA GENERATION RESILIENT DESPITE DEVALUATION IN VENEZUELA
Masisa generated EBITDA of USD36.8 million during the first quarter of 2014
(1Q'14), down from USD51.5 million during 1Q'13 (applying the exchange rate of
11.3 Bol/USD for 1Q'13 and 1Q'14). EBITDA in Venezuela sharply decreased as a
result of 14% lower volume and a weakening of the product mix toward less
value-added products, as a result of restrictions on the import of melamine.
The fundamentals of Masisa's Chilean operations remain favorable, despite the
absence of the USD5 million sale of forestry assets in 1Q'14 compared to
1Q'13. Competitive pressures continue, and a port strike in Chile during
January caused a 15% volume decline. EBITDA in this market decreased 32%
overall quarter-on-quarter. Brazil also faces competitive pressures due to
additional capacity coming in, which has affected prices in the MDF segment,
but volumes have increased. Mexico has shown sound performance as a result of
the addition of the Rexcel assets, while Argentina remains vulnerable, but
with a stable performance.
Fitch's Base Case indicates Masisa's EBITDA in the range of USD220 million for
2014, similar to 2012. This corresponds to expected total debt-to-EBITDA of
around 3.8x and net debt-to-EBITDA of around 3.0x for the year. Masisa
generated EBITDA of USD241 million during 2013, an increase from USD224
million during 2012 mainly driven by favorable performance in Brazil and
Mexico. The company's performance in Argentina has remained vulnerable, while
its EBITDA in Venezuela increased to USD76 million from USD70 million during
2012, despite the company's decision to present its 2013 financial statements
with the 160% devaluation of the bolivar against the dollar during January
Masisa's Brazilian operations benefited from lower energy costs, which offset
a 2.7% volume decrease due to a fire at the Montenegro MDP plant during
September 2012. Its Chilean operations benefited from a turnaround in the U.S.
housing market, which increased demand for MDF moldings by 76%. During the LTM
to March 31, 2014, Masisa generated USD215 million of EBITDA.
LARGE CAPEX PROGRAM SIGNIFICANTLY PREFUNDED
Masisa plans to invest approximately USD600 million to expand its operations
commencing 2013 through 2015. Key investments include the acquisition of
Rexcel and Arclin's assets (concluded); increased coating capacity in Chile
and Brazil (concluded); and constructing a new MDF plant in Mexico with annual
capacity of 220,000 cubic meters. This mill includes a 100,000 cubic meter
melamine facility. Financing for these investments includes the USD100 million
capital increase (of which USD80 million has been placed), USD300 million of
cash flow from operations over the period (ex-Venezuela and Argentina), and
USD205 million of proceeds from the divestiture of non-strategic forestry
assets (concluded). Masisa has significantly prefunded its capex requirements
for the next few years and exhibits a sound liquidity profile in Fitch's base
case over the course of the large investment period. Fitch expects that during
the high capex period, Masisa will exhibit negative free cash flow (FCF) from
operations, returning to positive FCF by 2018 when the investments are mostly
EXTENDED DEBT MATURITIES
Masisa exhibits sound liquidity and low refinancing risk. The company
refinanced USD226 million of short-term debt as of March 31, 2014 with USD300
million in 9.5% senior unsecured notes due 2019 issued in May 2014. The sale
of non-strategic forestry assets has further bolstered the company's liquidity
by USD205 million. Masisa has a comfortable debt amortization profile with
USD12 million in maturities during 2014, USD22 million during 2015, USD34
million during 2016, USD57 million during 2017, USD14 million during 2018 and
USD594 million thereafter. Masisa is expected to proactively refinance
impending maturities well in advance.
Negative rating actions could occur if there is a sustained increase in net
debt-to EBITDA above 4,0x, operating cash flow fundamentally weakens, or the
political environment in Argentina or Venezuela deteriorates further.
Absent significant debt reduction, positive rating actions are not likely in
the short term due to Masisa's reliance upon Venezuela and Argentina which
together comprise around 50% of its EBITDA.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' August 2014).
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
Press spacebar to pause and continue. Press esc to stop.