Fitch: Techint's Acquisition May Pressure Hylsamex/Siderar; No Impact on Ratings.

CHICAGO -- Fitch Ratings believes that the proposed plan by Grupo Techint (Techint) to expand its operations in Latin America via the US$2.3 billion acquisition of the Mexican steel producer Hylsamex S.A. de C.V. (Hylsamex), holds the potential to pressure the credit quality of Techint's current and future operating subsidiaries, in particular, Siderar S.A. (Siderar) and Hylsamex. However, Fitch believes that the transaction could be structured in a way that would allow the operating subsidiaries involved to support moderate increases in their respective debt levels or their indirect debt servicing burden via required dividend payments, and still maintain their current ratings.

Fitch expects the transaction will be financed with a combination of debt and equity. Incremental debt is expected to be raised at both the holding and operating company levels, which will likely have a direct or an indirect leveraging impact on Siderar and Hylsamex. Although the additional debt and the expected changes of shareholder structure may not have an immediate impact on the rated entities, Fitch will review the final financing structure to determine if each entity's free cash flow will adequately meet direct and indirect debt servicing requirements consistent with its respective rating level. Hylsa S.A. de C.V. (Hylsa), Hylsamex's operating subsidiary, is rated 'BB+' (mex) on the Mexican national rating scale, with a Positive Rating Outlook; Siderar is rated 'AA' (arg) on the Argentine national rating scale, with a Stable Rating Outlook.

Techint will likely raise debt and equity primarily at a new holding company to be created to consolidate its current and future international investments in flat and long steel producers Siderar (Argentina), Hylsamex (Mexico) and Siderurgica del Orinoco S.A. Sidor (Venezuela). Fitch expects excess free cash flow from these operating companies to be used to make dividends payments to the holding company to service any debt obligations incurred at this level. Fitch estimates that each operating entity could potentially be expected to provide annually between US$75 million and US$100 million in funds to support debt service requirements at the holding company level. In April 2005, Siderar distributed US$100 million in dividends. Sidor's recent debt structuring agreement restricts the company's ability to incur additional debt and distribute dividends, except for payments of excess cash to shareholders and creditors according to a specified equation. Together these companies are expected to have an annual production capacity of 12 million tons, sales of US$5 billion and total debt of less than approximately US$1.7 billion.

Although Fitch expects debt to be incurred at the holding company level, Fitch does not anticipate that Techint will raise new debt at the Hylsamex level as a result of the proposed acquisition. The total potential indirect debt servicing burden by Hylsamex should be manageable at the current rating level as the company has consolidated debt of approximately US$675 million, cash of US$220 million as of March 31, 2005 and is expected to generate EBITDA of about US$800 million in 2005.

As Techint plans to have its Argentine flat steel subsidiary, Siderar, acquire up to 30% of Hylsamex by purchasing shares on the open market, up to approximately US$380 million of related debt may be raised at Siderar. Fitch also believes that since Siderar currently has very low leverage, the additional debt expected to be incurred by Siderar, should still allow the company to maintain a credit profile consistent with its rating. The incremental direct or indirect debt servicing burden by Siderar is viewed to be manageable as the company has essentially no debt, cash of about US$400 million as of March 31, 2005 and is forecasted to generate EBITDA of about US$500 million in 2005.

In a separate transaction, Siderar plans to expand its position in Argentina by investing US$55 million of internal funds to purchase two plants from Acindar S.A. (Acindar) with a capacity to produce 140,000 tons of steel pipes. This smaller acquisition and that of Hylsamex, would allow Siderar to enhance its size and geographical diversification, broaden its mix of higher valued-added products and consolidate its position in the local market of Argentina.

The proposed acquisition of Hylsamex by Techint should have a minimal effect on the credit profile of Tenaris, the entity that consolidates Techint's steel pipe businesses serving the oil and gas industries. The transaction involves only for Tenaris to exchange its 12.6% stake in Sidor, a Venezuelan steel producer, for shares of the new holding company to be created. In addition, Tenaris will likely buy a steel tube plant, from Acindar for US$28 million. Tenaris is rated 'BBB' on an international scale, with a Stable Rating Outlook.

Techint plans to purchase the 42.5% stake in Hylsamex's total capital held by Grupo Alfa, Hylsamex's controlling shareholder. The acquisition will be carried out via Techint's subsidiary, Industrial Investments Inc., the controlling shareholder of Siderar. Techint also plans to acquire the remaining shares of Hylsamex traded on the Mexican stock exchange via public offering to minority shareholders. The price agreed upon with Grupo Alfa places the value for 100% of Hylsamex at US$2.3 billion, including a US$143 million dividend to be paid by Hylsamex. The acquisition is subject to approval by the Mexican regulatory authorities as well as the result of the public offering which must result in Techint obtaining more than 50% of the Hylsamex's capital. Another separate agreement between Techint and Grupo Alfa involves the acquisition of Grupo Alfa's 10.5% stake in Sidor for US$107 million, which would bring Techint's direct and indirect holdings in Sidor to 47.7%.

Grupo Techint, headquartered in Milan and Buenos Aries, operates through more than 30 companies worldwide in the steel, energy, engineering and construction sectors and had consolidated revenues of US$8.5 billion for the financial year ending June 30, 2004. Grupo Alfa holds a 42.5% stake in Hylsamex, a Mexican manufacturer of flat and long steel with an annual production capacity of 3.7 million tons of liquid steel. Siderar, with an annual production capacity of 2.6 million tons of crude steel, is the major producer of flat steel products in the Argentine market. Tenaris is majority-owned by Techint and holds the group's seamless and welded pipe manufacturing companies with combined capacity of 4.1 million tons of tubular steel products primarily for the oil and gas drilling and pipelines. Sidor, with an annual production capacity of 4.4 million tons of crude steel, is the largest producer of flat and long steel products in Venezuela. Acindar has an annual production capacity of 1.4 million tons of crude steel and is the largest producer of long steel products in Argentina.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.