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 CHICAGO, Oct. 15 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has issued a "BBB-" (Triple-B-Minus) rating on the $200 million medium-term note program of Grupo Sidek, S.A. de C.V. The rating is also extended to Grupo Sidek's subsidiaries, Grupo Situr, Grupo Simec and Kapital Haus, all of which may also issue under the program. Under the medium- term note program, the subsidiaries are unconditionally and irrevocably guaranteed by Grupo Sidek. The rating is for debt securities with maturities of five years or less.
 The rating reflects Grupo Sidek's dominant position in the Mexican tourism industry and in non-flat steel minimill products (structural and steel bars). Despite Sidek's capability to generate strong cash flow, internally generated funds have been below capital expenditures in recent years as the company has pursued an aggressive growth strategy. In implementing its growth strategy, Sidek has required capital for the purchase of land, the development of integrated resort complexes, working capital needs, and the need to increase efficiency and capacity in its steel and aluminum operations. However, Sidek has shown the ability and willingness to raise capital through the sale of equity at both parent and subsidiary levels. Our rating assumes that Sidek will continue to access the equity markets to maintain balance sheet strength as it moves ahead with its growth strategy.
 Grupo Sidek is structured as a holding company which conducts its operations through more than 100 direct and indirect subsidiaries. Situr and Simec also operate as holding companies with Grupo Sidek owning 61 percent of Situr's and 80 percent of Simec's outstanding voting stock. The remainder of the rating stock is publicly held. As a consequence, Sidek must rely principally on dividends from the subsidiaries to fund parent company operations, including debt service. The subsidiaries, however, have also provided a source of liquidity, as the parent has sold subsidiary equity. The ability of the subsidiaries to continue to generate adequate cash flow and provide liquidity and dividends for the parent will be important considerations in maintaining the "BBB-" rating.
 Through its subsidiaries, Grupo Sidek is in two principal lines of business. Through Grupo Situr, the company develops, owns and manages integrated resort complexes, urban residential developments, hotels and timesharing operations. A second subsidiary, Grupo Simec, manufactures steel and aluminum products from scrap metal. Additional operations include construction and related activities in Mexico, the factoring of accounts receivable and other activities related to the Mexican tourism industry, and ship-building and maritime services.
 Grupo Situr has 32 hotels in operation throughout Mexico and 12 hotels under construction, primarily in mega-developments located along the Pacific and Caribbean coasts. Situr is planning to grow aggressively, with 12 hotels currently in various stages of initial planning primarily in mega-developments and business cities in Mexico. Three projects, however, are located outside of Mexico, one in the Dominican Republic and two in Costa Rica.
 Despite a lackluster economic environment, Situr has shown resiliency. Situr has been able to maintain stable average occupancy rates in 1992. Furthermore, in 1992, Situr was able to increase its timeshare sales by 2 percent while nominally increasing its average price per timeshare per week. The innovative resorts Situr develops are called "mega-developments" and include hotels, villas, multi- condominiums and amenities such as golf courses and marinas. Long-term financing of real estate was uncommon in Mexico prior to Situr's offering long-term financing to purchase time-share and residential resort properties.
 The payment for sales of property, other than large plots of land, generally provides for a down payment of 10 percent and monthly payments of the purchase price balance over an average term of five to ten years. Historically, Sidek has experienced a default rate of 2 percent on average for the accounts receivable for sales of timeshare units and real property.
 Grupo Simec, Sidek's metals subsidiary, is an important player in the Mexican steel industry. In 1992, Simec accounted for production of over 60 percent of Mexican structural steel profiles and about 50 percent of the country's steel bars. Capital spending has been high over the last several years as the company has upgraded its steel mini- mill in Guadalajara to increase capacity and improve efficiencies. Additionally, a new mini-mill was built in Mexicali to increase capacity, reduce freight expenses, eliminate the need to purchase steel from third-parties and to provide operational synergies with the Guadalajara mill. Simec also produces aluminum structural profiles in its state-of-the-art semi-automatic plant and has a 12 percent share of the Mexican extruded aluminum market. As capital spending needs decrease with the completion of the Mexicali mini-mill and other projects, Simec should provide a stable base of earnings and cash flow.
 As it has pursued its growth strategy, Grupo Sidek has avoided over leveraging its balance sheet through the sale of common equity. At the end of 1992, total debt accounted for 43.5 percent of total capitalization. Taking into consideration cash, net debt-to-total capitalization was 40.5 percent. EBIT-to-net interest was 3.8 times in 1992. Although coverage's are likely to slip from 1992 levels, they should remain above the 3.0 times level.
 -0- 10/15/93
 /CONTACT: David W. Eisinger, CFA, of Duff & Phelps Credit Rating Co., 312-368-3145/

CO: Grupo Sidek ST: IN: SU: RTG

LG -- NY072 -- 2882 10/15/93 15:55 EDT
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Publication:PR Newswire
Date:Oct 15, 1993

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