-- Mexico-based chemicals and petrochemicals producer Mexichem has
recently announced a funding plan consisting of issuing $1 billion in notes
and an equity add-on of $1 billion.
-- We are assigning our 'BBB-' global scale rating to the proposed debt
-- We are affirming our ratings on Mexichem, including the 'BBB-' global
scale and 'mxAA/mxA-1+' national scale corporate credit ratings.
-- The stable outlook reflects our expectation that Mexichem's business
strategies, moderate financial policy, and solid key financial indicators will
support the ratings over the next few years.
On Sept. 7, 2012, Standard & Poor's Ratings Services assigned a 'BBB-' rating
to Mexichem S.A.B. de C.V's proposed $1 billion 144 A/Reg S senior
unsecured notes. The notes will be issued in two tranches: $700 million 10-year
senior notes due 2022 and $300 million 30-year senior notes due 2042.
At the same time, we affirmed our 'BBB-' global scale and 'mxAA/mxA-1+'
national scale corporate credit ratings on the company. The outlook is stable.
The company will use the proceeds for refinancing outstanding debt, working
capital, capital expenditures, and corporate uses.
The ratings on Mexichem continue to reflect our assessment of the company's
business risk profile as "satisfactory" and its financial risk profile as
In our view, Mexichem will maintain its "satisfactory" business profile in the
coming years through the full integration of its recent acquisition, Wavin,
and investments into its existing operations. We believe that the company will
continue acquiring assets and carry out investments that strengthen its
vertical integration and competitive position, as well as incorporating more
value-added products into its portfolio. In our view, Mexichem's business
profile has benefited from recent acquisitions, as it has significantly
diversified its geographic footprint while somewhat equalizing sales from its
operations in North America, South America, and Europe, with the exception of
Asia. The company's very strong market position, extensive vertical
integration along its three product chains (chlorine vinyl, transformed
products, and fluorine) and its proven ability to integrate acquired
businesses should allow it to maintain relatively stable margins despite some
inherent industry volatility.
We assess Mexichem's financial risk profile as "intermediate." Despite having
a somewhat acquisitive profile, we do not expect material shifts in the
company's financial policies and main target ratios, particularly its
intention to keep net debt to EBITDA below 2x. This constitutes a key rating
For the next two years, we expect Mexichem to maintain its main leverage and
cash-flow protection metrics in line with its financial risk profile. We
expect the company to post debt to EBITDA in the 2x-3x range and funds from
operations (FFO) to debt in the 30%-40% range. Our base-case scenario for 2012
assumes a sales volume growth of about 14% to 3.7 million tons of
petrochemical products due to expected increases in all three product chains,
particularly the integral solutions chain following the incorporation of
Wavin, and a sales price increase of about 30%, mainly propelled by the
fluorine chain. We also incorporate gradual improvements in cash flow
generation and synergies from the consolidation of recent acquisitions. In
addition, we are expecting capital expenditures of about $492 million in 2012
and $644 million in 2013, and the company will devote half of these amounts
for expansion projects to strengthen its product chains. We expect no
additional debt to fund these capital expenditures or to significant
acquisitions. In our view, the proposed issuance of the $1 billion notes will
have no effect on the company's debt given that it will use this amount to
refinance its outstanding debt. In our view, the equity add-on will strengthen
the company's capital structure and reduce somewhat the use of debt to carry
out potential new acquisitions.
For the 12 months ended June 30, 2012, Mexichem's financial performance was in
line with our expectations, which exclude a full year of Wavin's operations.
The company posted debt to EBITDA of 2.9x, FFO to debt of 26.8%, and EBITDA
interest coverage of 7.0x. We believe that the company will remain active in
seeking additional acquisitions and orienting them toward strengthening its
business position, vertical integration, and geographic diversification, and
complementing its business chains.
We assess Mexichem's liquidity as "adequate," reflecting our belief that its
cash flow generation and liquidity sources will be sufficient to cover debt
service, expected capital expenditures, and dividends. We also consider that
the company's debt maturity schedule is comfortable, with about 90% of debt
maturing after 2013, which compares favorably with expected cash flow
generation for the next few years. Pro forma after the proposed debt issuance,
about 73% of debt will mature after 2015. Our liquidity assessment
incorporates the following assumptions and considerations:
-- Sources of liquidity exceeding uses by at least 1.2x during the next
-- Liquidity sources exceeding uses even if EBITDA declined by 15%;
-- Generally prudent risk management based on a financial policy of
maintaining net debt to EBITDA at less than 2.0x;
-- Positive free operating cash flow generation of about $64 million in
2012 and $140 million in 2013, based on the half-year consolidation of Wavin's
operations in 2012 and the closing of other acquisitions in 2012. We assume
acquisitions for about $1 billion;
-- Comfortable headroom under its financial covenants (i.e. maximum net
debt to EBITDA and minimum EBITDA interest coverage of 3.0x for both);
-- Annual dividends of about $60 million;
-- Capital expenditures of about $492 million during 2012 and $644
million in 2013;
-- Liquidity sources of about $509 million in unrestricted cash and
equivalents as of June 30, 2012, and $618 million in availability under
committed credit lines which are mostly due 2014, which compare favorably with
projected short-term maturities of about $26 million due 2012 and $65 million
due 2013; and
-- On a pro forma basis, the largest maturity is $484 million due 2015,
which we are comfortable in the company's ability to repay, given its cash
balance position, cash flow generation, sound bank relationships, and
satisfactory standing in credit and capital markets.
The stable outlook on Mexichem reflects its moderate financial policies,
particularly net debt to EBITDA of less than 2.0x, which we believe will keep
supporting our investment-grade ratings on the company. After the add-on, we
expect that Mexichem will continue to make acquisitions with lesser use of
debt to improve its business segments through geographic diversification and
increasing its vertical integration through complementary investments.
The company's credit measures will likely continue to meet our expectations,
even amid soft economic conditions in much of the developed world.
Nonetheless, we could lower the ratings if Mexichem's financial profile
deteriorates, particularly if it posts debt to EBITDA of more than 3.0x and
FFO to debt consistently below 30% on a trailing 12-months basis, which could
result from new acquisitions and/or significant investments, and/or a delay in
synergies. An upgrade is less likely at this point, but we might consider it
if the company continues to strengthen its business profile while maintaining
total debt to EBITDA of about 2.0x and/or FFO to total debt of 40%.
Related Criteria And Research
-- Methodology And Assumptions: Standard & Poor's Standardizes Liquidity
Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Mexichem S.A.B. de C.V.
$700 million 10-year senior notes due 2022 BBB-
$300 million 30-year senior notes due 2042 BBB-
Mexichem S.A.B. de C.V.
Corporate Credit Rating BBB-/Stable/--
Caval - Mexican Rating Scale mxAA/Stable/mxA-1+
Senior Unsecured mxAA
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
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