Oct 16 - Fitch Ratings has affirmed Tunisia-based cement manufacturer
Societe des Ciments d'Enfidha's (SCE) National Long-term rating at 'BBB(tun)'
and National Short-term rating at 'F3 (tun)'. The Outlook is Stable.
The affirmation reflects SCE's recovery of an adequate trading performance in
the first eight months of 2012 after production recovered to pre-revolution
levels at its Enfidha plant. Despite expected lower operating margins in 2012
compared to historical levels due to rising energy prices and wages as well as
frozen regulated cement prices, the agency believes SCE free cash flows (FCF)
will return to positive territory in 2012 albeit lower than historical levels
(FCF margin expected at 3% from 18% in 2010) and FFO adjusted leverage to
recover to 0.8x at FYE12 from 1.4x at FYE11.
The ratings continue to reflect SCE's position as Tunisia's largest cement
producer but are constrained by the small size of the business and limited
geographical diversification compared to Fitch-rated peers. The ratings also
account for the sector operating risk resulting from exposure to cyclicality,
being dependent on the overall economic environment, public expenditure and
construction. The agency also remains concerned about the expected overcapacity
in the sector 2013/2014 as new capacity additions come into place in a context
of low economic growth and limited public spending as well as uncertainties
about future regulated price developments and export regulations.
Although Fitch incorporates into SCE's ratings the operational benefits (such as
transfer of knowhow and expertise) of being a subsidiary of Cementos Portland
Valderrivas, which indirectly holds 63% of SCE's shares, it continues to rate
SCE on the basis of its standalone credit profile considering the currently weak
legal and strategic ties with its parent. The rating reflects the expectation
that the company will pay the overwhelming proportion of its free cash flow
generation in dividends to shareholders.
The agency notes that although SCE distributed large dividends in 2011 and 2012
in a context of minimal capital expenditure, liquidity is supported by available
back-up credit lines of TND12m at end September 2012 and good access to funding.
SCE has an estimated production capacity of 2 million tons of cement per annum
(mtpa). It is owned by Spanish cement producer, Cementos Portland Valderrivas.
CPV has an estimated consolidated cement capacity of 18 mtpa.
WHAT COULD TRIGGER A RATING ACTION
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- Successful expansion towards neighbouring countries resulting in a stronger
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- Sharp decline in trading performance
- Aggressive shareholder friendly strategy resulting in sustained negative FCF
- Substantial increase in leverage - FFO net adjusted leverage above 2x
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012,
'National Ratings Criteria', dates 19 January 2011, 'Evaluating Corporate
Governance' dated 13 December 2011 and "Parent and Subsidiary Rating Linkage
Criteria Report", dated 8 August 2012, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology
National Ratings Criteria
Evaluating Corporate Governance
Parent and Subsidiary Rating Linkage