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Fitch Affirms Industrias Metalurgicas Pescarmona at 'B+'; Outlook Stable.

BUENOS AIRES, Argentina -- Fitch Ratings has affirmed the following ratings of Industrias Metalurgicas Pescarmona S.A.I.C.y F. (IMPSA):

--Foreign Currency Issuer Default Rating (IDR) at 'B+';

--Local Currency IDR at 'B+';

--USD$225 million Senior Unsecured Notes due 2014, at 'B+'/RR4

Concurrently with these rating actions, Fitch has upgraded IMPSA's national scale ratings to 'AA(arg)' from 'AA-(arg)'.

The Rating Outlook is Stable.

IMPSA's 'B+' ratings reflect the positive trend for the company's long-term business fundamentals due to sustained global demand for hydro and wind power generating equipment. They also incorporate the company's growing business presence in Brazil and its sizeable backlog, which provides some certainty to the company's cash generation over the medium term. Balanced against these strengths are the company's high leverage, aggressive capital expenditure program and its backlog concentration on a few large projects in developing countries. A sudden downturn in the key markets would negatively impact IMPSA's ability to develop new projects.

Fitch expects revenues and EBITDA from Brazil to represent more than 65% of IMPSA's consolidated figures from 2011 onwards. The growth of the company's business in Brazil has reduced IMPSA's exposure to more volatile markets such as Argentina and has increased its access to multiple funding sources. This has enabled the company's foreign currency rating to be rated above the 'B' country ceiling of Argentina.

As of April 30, 2011, IMPSA's backlog was USD$3.6 billion, an improvement from the USD$3.16 billion during January 2011 and USD$2.16 billion during January 2010. Given the long-term production cycle of IMPSA's developments, usually in the range of 30 months, this backlog level provides some certainty to the company's cash generation in the medium term. Although the company expanded its operations throughout Latin America, backlog concentration remains somewhat high, with five projects representing 56% of total backlog as of April 2011. The main projects in the hydro equipment business unit are Belo Monte (Brazil) and Tocoma (Venezuela), whereas the main projects in the wind equipment unit are Ceara II, Ceara III and CHESF, all located in Brazil.

For the 12 months ended January 31, 2011, IMPSA's revenues and EBITDA grew to USD$1.013 million and USD$183 million, respectively, from USD$641 million and USD$125 million during FY 2010. Fitch expects IMPSA's EBITDA to grow to more than USD$235 million during the fiscal year ended (FYE) Jan. 31, 2012. The company's free cash flow (FCF) is anticipated to remain negative during 2011 and 2012 due to capital expenditures and growing working capital needs. Investments in the construction of wind farms are estimated at approximately USD$300 million and USD$680 million for those years, respectively. Much of the cash deficit will be funded with non-recourse, project financing. For the fiscal year ended in January 2012, Fitch expects IMPSA's total debt with recourse to increase to approximately USD$670 million from USD$633 million at FYE January 2011, resulting in a total debt (with recourse)-to-EBITDA ratio around 3 times (x). This ratio is an improvement from 3.4x for the FYE January 2011 and 3.5x for the FYE ended January 2010.

During 2010 IMPSA underwent a liability management program that included the creation of WPE International Coorperatief (WPEI). Between September 2010 and March 2011, WPEI issued USD$390 million notes due in 2020. These notes are irrevocably and unconditionally guaranteed by IMPSA and WPE (IMPSA's Brazilian subsidiary) on a senior unsecured basis. Through this issuances, IMPSA extended its debt average life to seven years from 2.4 years, as part of the proceeds were used to repurchase USD$188 million out of the USD$225 million notes maturing 2014. Proceeds were also used to cancel short term loans and finance CAPEX needs.

The company's ratings could come under pressure if non-recourse financing increases above levels anticipated by Fitch, any material performance problems that threaten future projects and cash flow, or a failure to comply with the terms for the operation of the wind farms (for which long term PPAs have been signed with Eletrobras and the CCEE).

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (July 12, 2011);

--'Liquidity Considerations for Corporate Issues' (June 12, 2007);

--'Parent and Subsidiary Rating Linkage' (July 14, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

Parent and Subsidiary Rating Linkage Criteria Report

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826

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.
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Publication:Business Wire
Geographic Code:3ARGE
Date:Aug 9, 2011
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