DUFF & PHELPS RATES CONDUMEX NOTES 'BBB', 'BBB-'
CHICAGO, July 28 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has assigned preliminary ratings of `BBB' (Triple-B) to Grupo Condumex S.A. de C.V.'s 6.25 percent notes due July 27, 1996 and `BBB-' (Triple-B- Minus) to its 7.375 percent notes due July 27, 1998. These notes rank pari pasu with all other outstanding unsecured and unsubordinated debt of Condumex. A significant factor in Duff & Phelps rating is the outlook and existing ratings for the country of Mexico. Duff & Phelps has assigned ratings of `BBB' (Triple-B) for Mexican government debt maturing by 1996, `BBB-' (Triple-B Minus) for government debt maturing 1997-1999, and `BB+' (Double-B-Plus) for debt maturing after 1999. Mexico has in recent years enjoyed improved financial flexibility derived from inflation reduction, fiscal balance, and trade liberalization. However, the lower rating for longer maturities reflects Duff & Phelps caution concerning the moderation of Mexico's trade imbalance and sustainability of its reforms. For these same reasons, Duff & Phelps has differentiated Condumex's debt based on maturity. A key consideration in Duff & Phelps rating is Condumex's well- diversified and solid market position, serving primarily the telecommunications, automotive, and electromanufacturing industries. Almost 12 percent of total sales are represented by communications cable and services to Mexico's telephone company, Telephonos de Mexico (Telmex). Telmex has been mandated by the government to grow in excess of 12 percent/year during the remaining four years of its exclusivity status. Furthermore, in 1992, Telmex and Condumex became affiliates due to their common ownership by Grupo Carso (Carso). Condumex has been a major supplier to Telmex for the last 20 years, and Duff & Phelps expects Condumex's telecommunications segment to continue to participate in this growing market. Condumex also has a strong position selling electrical harnesses and other auto parts to the OEM and replacement markets. These activities are conducted through majority owned joint ventures, allowing Condumex access to foreign technology and improving their global sourcing capabilities. In 1992, this business represented over 50 percent of Condumex's operating profits. However, Duff & Phelps recognizes that this mature market can be subject to significant variability depending on the volumes and cost-pressures of the world-wide automobile industry. Condumex's electromanufacturing segment, producing primarily wires and cables and electrical equipment, has been most affected by foreign competition into Mexico markets. Condumex has responded by consolidating facilities, reducing employment, and withdrawing from certain marginal markets. These actions appear to have stabilized the cash flows and margins from this segment, although competitive conditions remain intense. Duff & Phelps rating also recognizes that Condumex must continue to improve productivity to be successful in its increasingly competitive markets. Over the last few years, Condumex has rationalized its facilities and reduced employment considerably in response to import pressure. These productivity efforts have been accelerated under the ownership of Carso. Nevertheless, we recognize that further trade liberalization such as NAFTA will require that Condumex make further progress in reducing costs and improving quality. Supporting Duff & Phelps rating is Carso's ownership of almost 75 percent of Condumex's common stock. Carso is a financially strong, well diversified company with interests in retail, mining, automotive, and tobacco, in addition to its Condumex and Telmex interests. As a subsidiary of Carso, Condumex gains strong management, synergies with Telmex and other affiliates, and potential cash support from its well- capitalized parent. While Grupo Carso does not guarantee the rated notes, an indenture provision will allow the bonds to be redeemed by the holders if Carso does not maintain a majority ownership position. The investment grade ratings are supported by the moderate leverage and satisfactory cash flows at Condumex. The fixed obligation ratio is expected to continue near its historical level of roughly 30 percent. Cash levels have kept the fixed obligation ratio net of cash at 20-25 percent of capitalization, with interest income providing a significant offset to interest expense. In 1992, EBDIT/Net Interest was over seven times, and EBDIT-Capital spending coverage was over four times. Dividends are expected to equal roughly 30 percent of Condumex net income. -0- 7/28/93 /CONTACT: William T. Hayes, CFA of Duff & Phelps, 312-368-3142/
CO: Grupo Condumex S.A. de C.V. ST: IN: SU: RTG
PS -- NY046 -- 7256 07/28/93 11:28 EDT
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|Date:||Jul 28, 1993|
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