Fitch Ratings has affirmed the ratings of Masisa S.A. (Masisa) as
--Foreign and local currency Issuer Default Ratings (IDRs) at 'BB';
--USD300 million senior unsecured 9.5% notes due 2019. The notes are
unconditionally guaranteed by Forestal Tornagaleones and Masisa Forestal;
--National scale rating of Bond Line No. 356, No. 439, No. 440, No. 560,
No. 724 and No. 725 at 'A-(cl)';
--Long term National Scale rating at 'A- (cl)';
--Equity rating at 'Primera Clase Nivel 3(cl)'.
--National short term rating at 'N1(cl)'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
HIGH EXPOSURE TO ARGENTINA AND VENEZUELA's ECONOMIES
Masisa's ratings are constrained by the company's large exposure to
Venezuela and Argentina. Combined these markets represented 53% of
Masisa's consolidated EBITDA as of the last 12 months (LTM) to March 31,
2014. Challenges in these markets include non-stable currencies,
political interference, as well as foreign currency transfer
restrictions. Masisa's net debt-to-EBITDA ratio of 3.6x as of March 31,
2014 is above the 3.4x the company averaged during the past five years.
Net leverage excluding operations in Venezuela and Argentina was 7.4x.
SOUND BUSINESS POSITION
The ratings of Masisa incorporate its sound business position within
Latin America as a leading producer of wood boards with 3.4 million
cubic meters of installed capacity. The company's operations are
concentrated in Chile, Brazil, Argentina, Venezuela, and Mexico. Masisa
has Placentro retail stores throughout the region and commercial offices
in Peru, Colombia and Ecuador, and exports to countries outside the
region such as North America. An additional credit consideration is the
company's continued use of equity to partially fund growth. Increases of
equity have occurred in 2003, 2005, 2009 and 2013.
FORESTRY ASSETS ARE IMPORTANT CREDIT CONSIDERATION
The ratings further incorporate Masisa's ownership of 193,000 hectares
of plantations in South America, which along with its forestry land, had
a book value of USD608 million as of June 2014. This value is on a pro
forma basis, after the sale of 32,500 hectares of plantations in Chile
to an 80/20 joint venture between Hancock Natural Resource Group
(Hancock) and Masisa. Masisa received USD205 million during April 2014
and partially used to prepay debt. This sale reduced the company's net
debt as of March 31 2014 to USD562 million, from USD767 million. As a
result, net leverage ratios should decrease to 2.6x and 5.5x (excluding
EBITDA generated by Venezuela and Argentina).
Through this transaction, Masisa transferred the forestry assets in
question to a joint venture company based in Chile, with Hancock owning
80% of the shares and Masisa owning the remaining 20%. Masisa and
Hancock entered into a long-term fiber supply agreement which gives
Masisa the option to purchase wood fiber. During 2013 Masisa sourced 3%
of its Chilean industrial fiber needs from these forests.
EBITDA GENERATION RESILIENT DESPITE DEVALUATION IN VENEZUELA
Masisa generated EBITDA of USD36.8 million during the first quarter of
2014 (1Q'14), down from USD51.5 million during 1Q'13 (applying the
exchange rate of 11.3 Bol/USD for 1Q'13 and 1Q'14). EBITDA in Venezuela
sharply decreased as a result of 14% lower volume and a weakening of the
product mix toward less value-added products, as a result of
restrictions on the import of melamine. The fundamentals of Masisa's
Chilean operations remain favorable, despite the absence of the USD5
million sale of forestry assets in 1Q'14 compared to 1Q'13. Competitive
pressures continue, and a port strike in Chile during January caused a
15% volume decline. EBITDA in this market decreased 32% overall
quarter-on-quarter. Brazil also faces competitive pressures due to
additional capacity coming in, which has affected prices in the MDF
segment, but volumes have increased. Mexico has shown sound performance
as a result of the addition of the Rexcel assets, while Argentina
remains vulnerable, but with a stable performance.
Fitch's Base Case indicates Masisa's EBITDA in the range of USD220
million for 2014, similar to 2012. This corresponds to expected total
debt-to-EBITDA of around 3.8x and net debt-to-EBITDA of around 3.0x for
the year. Masisa generated EBITDA of USD241 million during 2013, an
increase from USD224 million during 2012 mainly driven by favorable
performance in Brazil and Mexico. The company's performance in Argentina
has remained vulnerable, while its EBITDA in Venezuela increased to
USD76 million from USD70 million during 2012, despite the company's
decision to present its 2013 financial statements with the 160%
devaluation of the bolivar against the dollar during January 2014.
Masisa's Brazilian operations benefited from lower energy costs, which
offset a 2.7% volume decrease due to a fire at the Montenegro MDP plant
during September 2012. Its Chilean operations benefited from a
turnaround in the U.S. housing market, which increased demand for MDF
moldings by 76%. During the LTM to March 31, 2014, Masisa generated
USD215 million of EBITDA.
LARGE CAPEX PROGRAM SIGNIFICANTLY PREFUNDED
Masisa plans to invest approximately USD600 million to expand its
operations commencing 2013 through 2015. Key investments include the
acquisition of Rexcel and Arclin's assets (concluded); increased coating
capacity in Chile and Brazil (concluded); and constructing a new MDF
plant in Mexico with annual capacity of 220,000 cubic meters. This mill
includes a 100,000 cubic meter melamine facility. Financing for these
investments includes the USD100 million capital increase (of which USD80
million has been placed), USD300 million of cash flow from operations
over the period (ex-Venezuela and Argentina), and USD205 million of
proceeds from the divestiture of non-strategic forestry assets
(concluded). Masisa has significantly prefunded its capex requirements
for the next few years and exhibits a sound liquidity profile in Fitch's
base case over the course of the large investment period. Fitch expects
that during the high capex period, Masisa will exhibit negative free
cash flow (FCF) from operations, returning to positive FCF by 2018 when
the investments are mostly concluded.
EXTENDED DEBT MATURITIES
Masisa exhibits sound liquidity and low refinancing risk. The company
refinanced USD226 million of short-term debt as of March 31, 2014 with
USD300 million in 9.5% senior unsecured notes due 2019 issued in May
2014. The sale of non-strategic forestry assets has further bolstered
the company's liquidity by USD205 million. Masisa has a comfortable debt
amortization profile with USD12 million in maturities during 2014, USD22
million during 2015, USD34 million during 2016, USD57 million during
2017, USD14 million during 2018 and USD594 million thereafter. Masisa is
expected to proactively refinance impending maturities well in advance.
Negative rating actions could occur if there is a sustained increase in
net debt-to EBITDA above 4,0x, operating cash flow fundamentally
weakens, or the political environment in Argentina or Venezuela
Absent significant debt reduction, positive rating actions are not
likely in the short term due to Masisa's reliance upon Venezuela and
Argentina which together comprise around 50% of its EBITDA.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' August 2014).
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Source: Fitch Ratings