TEXT-Fitch rates Mexichem proposed senior notes

Fri Sep 7, 2012 5:29pm EDT

Sept 7 - Fitch Ratings has assigned a 'BBB-' rating to Mexichem, S.A.B. de
C.V.'s (Mexichem) proposed issuances of senior notes of up to
USD700 million due 2022 and USD300 million due 2042. Proceeds from the proposed
issuances will be used primarily to refinance existing indebtedness. 

The company announced its financial plan which includes the issuance of up to 
USD1 billion in senior notes to refinance debt and the offering of shares for up
to USD1 billion which will be used for general corporate purposes, including 
working capital, capital expenditures and to finance future growth, including 
potential acquisitions.

Mexichem's ratings are supported by the company's business profile as a leading 
vertically integrated chemical and petrochemical company in Mexico, with 
important market shares and presence in Latin America, United States, Japan and 
Europe. The ratings are also supported by Mexichem's competitive cost structure 
and solid financial profile, characterized by positive free cash flow generation
in recent years. Fitch expects that the company's leverage will remain at or 
below management's target of a net debt-to-EBITDA ratio below 2x. The ratings 
also consider Mexichem's aggressive growth strategy through acquisitions and 
greenfield projects, as reflected in the recent tender offer for all the shares 
of Wavin N.V. for approximately 530 million euros, strong competition in all 
markets where it operates, as well as the cyclical nature of the chemical and 
construction industries.

Mexichem's performance during the current economic cycle has remained strong and
reflects the company's vertical integration that serves different segments along
the value chain and allows it to focus its development on value-added products. 
The company's positive free cash flow generation is also a result of its leading
market position and pricing power, increased product and geographic 
diversification, as well as cost and working capital controls. 

Mexichem operations are divided into three production chains: chlorine-vinyl, 
fluorine, and integrated solutions (basically polyvinyl chloride-PVC pipes and 
fittings), which mainly target the construction, agricultural and industrial 
sectors. The company's vertical integration acts to a degree as a barrier to 
entry in some of its markets. Management's strategy continues to focus on adding
value to the main raw materials source of the company: salt dome and fluorspar. 
Future growth will be driven by the consolidation of current operations and 
acquisitions to complement the company's business portfolio.

Mexichem's revenues are closely linked to the U.S. dollar: 40% of consolidated 
sales are denominated and paid in U.S. currency, 30% is referenced to the dollar
and paid in local currencies, and the remaining are domestic. Mexichem has 
gained economies of scale and geographic scope, and to date exports its products
to over 50 countries and has manufacturing facilities in 16 countries. In 
addition, Mexichem has developed in-house technology and has a low production 
cost given that its manufacturing facilities benefit from favorable labor and 
geographic conditions. 

The company's credit protection measures remained strong and stable. For the 
latest 12 months (LTM) ended June 30, 2012, Mexichem's EBITDA-to-interest 
expense coverage was 7.1x, similar to full-year 2011's at 7.4x; total 
debt-to-EBITDA for the same period was 2.8x and net debt-to-EBITDA was 2.2x 
considering the recently acquired Wavin operations. Fitch expects that the 
company's ratios would converge to management's target of total debt-to-EBITDA 
of 2.0x in the short term. 

The company's liquidity is adequate and refinancing risk is low. For the LTM 
ended June 30 2012, the company generated approximately USD872 million of EBITDA
and approximately USD92 million of free cash flow before acquisitions. Total 
debt at the end of the second quarter was approximately USD2.4 billion, with 
cash and equivalents at the same date of approximately USD500 million. 
Short-term represents only 5% of total debt, or approximately USD118 million. 
Recently, Mexichem signed a USD1 billion revolver bank facility with maturity in
2014.

Currently Fitch rates Mexichem as follows:

--Foreign currency Issuer Default Rating (IDR) 'BBB-';
--Local currency IDR 'BBB-';
--Long-term national scale rating 'AA(mex)' ;
--USD350 million senior notes due 2019 'BBB-';
--Certificados Bursatiles issuances 'AA(mex)'.

The Rating Outlook is Stable.
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