Key Rating Drivers
MJTE's ratings reflect its moderate business scale and concentrated backlog on a small set of large projects linked with public sector clients. It also lacks the conservative liquidity policy necessary to support a growing business model that relies on relevant working capital needs and is also exposed to the intense volatility inherent to the heavy construction sector.
Other limiting factors for MJTE's credit include its restricted access to the debt market, influenced by the historical contingent liability linked with other subsidiaries of the
Expectation of No Additional Support to Affiliates
MJTE is the main operating company and cash generator of the
Fitch also incorporates in the current IDRs no additional financial support from MJTE to affiliates. The agency also believes in potential cash inflow to MJE, given a favorable jurisdictional decision regarding some of its receivables under discussion, which should provide MJE with resources to support its legal and administrative expenses. The implementation of ring-fencing strategy, currently underway, should also limit the support to affiliates through the establishment of financial and non-financial covenants, which should also contribute to improving company access to the credit market.
MJTE's liquidity is tight in order to support its long business financial cycle. By the end of
The company has the challenge to implement its financial strategy of lengthening the debt maturity profile. By the end of
Fitch expects MJTE to succeed in obtaining a more adequate debt profile. The ratings incorporate that the company will restore its short-term debt coverage ratios to levels that are more consistent with the volatile nature of its business and closer to those reported in previous years, important for avoiding future pressure on its current ratings.
MJTE has historically presented low leverage. In
Lower Working Capital Pressures on CFFO Expected
MJTE's operating cash flow from operations (CFFO) has been pressured by the high volume of working capital needs. Fitch expects lower working capital requirements with improving project management procedures particularly on works developed for Petrobras, the company's main client. In 2013, the company's CFFO of
The company's EBITDA margin is in line within the industry peers. In 2013, the company reported EBITDA of
At the end of 2013, MJTE's backlog was sizeable and totaled
Also at the end of 2013, the company's backlog was highly concentrated, with 20% on projects for Petrobras and about 85% linked with public sector clients. Of MJTE's backlog, the 10 largest projects represented 70% of its total backlog by
Deterioration in operating performance evidenced by prolonged margin reduction, increased net leverage to ratios higher than 2.0x with the debt maturity profile concentrated in the short term, or further support to affiliates, may lead to a negative rating action.
A positive rating action is not likely in the short term. In the medium term, it will depend on the company maintaining high margins coupled with significant improvement on liquidity levels, diversification of its backlog, and implementation of a robust structure for ring-fencing the transfer of resources to affiliates.
Additional information is available at 'www.fitchratings.com'.
-- 'Corporate Rating Methodology' (
-- 'National Scale Ratings Criteria' (
National Scale Ratings Criteria
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Fitch Ratings Brasil Ltda
Source: Fitch Ratings
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