TEXT-Fitch rates Mexichem proposed senior notes
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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