News Column

Fitch: Ratings Unchanged for Votorantim Cimentos Despite CADE Ruling

May 30, 2014



CHICAGO--(BUSINESS WIRE)-- According to Fitch Ratings, the recent decision by Brazil's anti-trust agency, CADE, to stiffen the penalties against Brazilian cement companies allegedly engaged in price collusion presents a significant challenge to Votorantim Cimentos (VCSA), but it will not result in a negative action to its 'BBB' rating. VCSA's Rating Outlook was affirmed by Fitch at Negative on April 8, 2014. This rating action took into consideration the possibility of a negative ruling by CADE. All six of the cement companies involved in the trial were found guilty and VCSA has announced its intent to appeal the ruling. The company will most likely be forced to post guarantees during the appeal process, which is expected to extend beyond 2014.

CADE's proposed recommendations include several provisions which would negatively impact VCSA, including a fine of BRL1.5 billion and the forced sale of certain assets. The fine would adversely affect VCSA's liquidity and hamper its ability to deleverage as expected. In the event that VCSA has to pay the fine during 2014, Fitch projects pro forma net leverage could range from 3.2x-3.5x instead of the previously estimated net leverage ratio of 2.8x at Dec. 31, 2014. In addition, CADE included an imposed restriction on VCSA's access to public financing. While VCSA has strong capital markets access in both Brazil and abroad, the restriction could potentially increase the company's cost of debt financing.

CADE's sanctions against VCSA also include a mandatory divestiture of its minority stake in its cement and concrete companies, the sale of up to 20% of its ready-mix assets in areas where the company has more than one plant within a 50km radius, and the sale of a strategic cement asset. The potential cement asset sale is not quantifiable at this point. Fitch believes the potential asset sales are only mildly negative as VCSA would be receiving cash for the assets. The up to 20% sale of VCSA's ready-mix assets is immaterial as the segment only accounts for a very small percentage of the company's consolidated EBITDA. An asset sale should also not materially impact VCSA's operations given the company's 31.7 million tons of installed production capacity in Brazil as of Dec. 31, 2013. The decision did not include the required sale of 35% of VCSA's cement capacity, which had been previously included in the sanctions.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Phillip Wrenn, +1-312-368-2075

Associate Director

phillip.wrenn@fitchratings.com

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Secondary Analyst

Joe Bormann, CFA, +1-312-368-3349

Managing Director

joe.bormann@fitchratings.com

or

Media Relations

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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