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Fitch: Gruma's Sale of Wheat Operations Positive for Credit Quality

June 11, 2014

MONTERREY, Mexico--(BUSINESS WIRE)-- Fitch Ratings views Gruma, S.A.B. de C.V.'s (Gruma) agreement to sell its Mexican wheat flour operations to Grupo Trimex, S.A. de C.V. and use the proceeds of approximately USD200 million to pay down debt as positive for the company's credit quality. Fitch estimates that Gruma's consolidated profitability margins will improve as a result of divesting a less profitable operation. The use of the proceeds from the sale to reduce debt will result in a ratio of total debt-to-EBITDA decreasing to around 2.0x from the 2.3x reported for the 12 months ended March 31, 2014. In addition, consolidated EBITDA margin is expected to increase by 90 basis points to approximately 13.6%.

Fitch's rating triggers for a positive rating action include the combination of debt reduction, stronger operating results, and stable cash flow generation leading to a sustained improvement in the company's gross leverage ratio close to 2.0x. In addition, sustained profitability across the business cycle and debt amortization aligned with cash flow generation will be viewed as positive to credit quality. Conversely, a significant deterioration of the company's gross leverage or liquidity position as a result of operational factors, adverse market conditions, or debt-financed acquisitions could lead to negative rating actions.

The sale of the wheat operations is in line with Fitch's view of Gruma management's focus on company profitability. The transaction involves the sale of the shares of Molinera de Mexico, S.A. de C.V.'s (Molinera Mexico), owned by Gruma, and the assets owned by a subsidiary of Grupo Industrial Maseca, S.A.B. de C.V. related to wheat flour production. Molinera Mexico represented approximately 9% and 2% of the total revenues and EBITDA reported by Gruma in 2013, respectively. The agreement is expected to be executed by October 2014 and is subject to approval from the Mexican Federal Trade Commission and certain conditions agreed to among the parties.

Gruma's ratings are supported by its solid business profile as one of the largest producers of corn flour and tortillas in the world, its strong brand equity, and good operating performance. The ratings also incorporate the company's focus on debt reduction and improved profitability, as well as Gruma's geographic diversification and hard currency revenue generated by Gruma Corporation with operations in the U.S. and Europe. The ratings also reflect its exposure to the volatility in prices of its main raw materials, corn and wheat, and the uncertainty derived from the nationalization of the Venezuelan operations, which are excluded from Fitch's credit analysis.

Fitch currently rates Gruma as follows:

-- Long-term Foreign Currency Issuer Default Rating (IDR) 'BB+';

-- Long-term Local Currency IDR 'BB+';

-- USD300 million perpetual bonds 'BB+'.

The Rating Outlook is Stable.

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

Applicable Criteria and Related Research:

-- 'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

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

Rogelio Gonzalez, +52-81-8399-9100

Director

Fitch Mexico S.A. de C.V.

Prol. Alfonso Reyes 2612

Monterrey, N.L., Mexico

or

Secondary Analyst

Johnny da Silva, +1-212-612-0367

Director

or

Media Relations, New York

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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