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Fitch Affirms Molinos Rio de la Plata IDR at 'BB-'.

NEW YORK -- Fitch Ratings has affirmed the local currency Issuer Default Rating (IDR) of Molinos Rio de la Plata, S.A. (Molinos) at 'BB-'. The Rating Outlook is Stable.

The ratings reflect the company's ability to earn dollar-based revenues through exports and a leading business position in domestic branded food products. The ratings are constrained by the cyclicality of operations due to the volatility of crushing margins.

Molinos' strategy is based on developing complementary crushing activities and branded food products manufacturing activities. Following the Argentine peso devaluation of 2001, the company increased its focus on foreign markets, consolidating various export-oriented businesses and expanding its crushing and merchandising activities. Importantly, Molinos recently completed the construction of a port at its San Lorenzo facility and the expansion of the crushing plant, which tripled capacity at the facility from 6,000 tons/day to 18,000 tons/day. This $110 million project has strengthened the company's position as one of the largest world players in soybean crushing. Over the next few years, exports should continue to grow strongly as a result of the large expansion of the San Lorenzo plant and, to a lesser degree, from higher regional exports of branded foods. Sales of branded foods in the domestic market should continue to increase gradually in line with the recovery of private consumption in Argentina.

During 2005, revenues declined by 6%, driven by lower prices of oilseeds, which offset an increase in sales of branded products. Notwithstanding, margins recovered from 2004 across the company's oilseed-crushing activities and in branded products, translating into higher EBITDA for year. During the six months ended June 30, 2006 revenues grew by 65% driven by the capacity expansion of the San Lorenzo plant. Exports grew by 94% compared to the first six months of 2006. Consolidated profit margins, however, were affected. While Molinos' business reorientation to oilseed crushing activities has boosted dollar revenues, volatility has increased and margins have declined.

The company's leverage is high as it requires important levels of working capital to fund inventory purchases and carryover. Short-term debt is seasonal and increases substantially during the April-June soybean harvest due to peak oilseed purchases. At June 30, 2006 total debt reached $392 million, an increase from $377 million at Dec. 31, 2005 that followed higher inventories related to the large increase of capacity at San Lorenzo. The vast majority of Molinos' debt is dollar denominated.

At June 30, 2006, 78% of the debt was due in the short term (largely pre export financing). The debt was composed as follows: $7 million of outstanding balance on Molino's Senior Export Notes (paid-out in its entirety last October 2006), $332 million of pre export financing and $49 million in loans with local and foreign banks.

Credit analysis for agricultural processors and merchandisers considers leverage ratios that exclude short-term debt used to finance readily marketable inventories (RMIs) that are hedged against price risk. Fitch also reclassifies the interest expense on short-term debt that finances RMIs as cost of goods sold when calculating adjusted EBITDA-to-interest coverage ratios. At June 30, 2006, the ratio of consolidated net debt (adjusted for RMIs) was 1.5 times (x) compared to 2.2 times (x) at December 31, 2005. The balance of cash and marketable securities reached $30 million, which, added to $280 million of RMIs, provided the company with adequate liquidity to meet short-term debt requirements.

Over the past several years, the company has been able to fund capital expenditures with internal cash flow. Capital expenditures, including acquisitions, reached $70 million in 2005 and $75 million in 2004. This is an important increase from $13 million and $10 million in 2003 and 2002, respectively, due to the completion of the San Lorenzo project over the past two years. Over the next few years, annual capital expenditures should reach more moderate levels of around $40 million-$50 million.

Molinos is Argentina's largest food producer and one of the largest and exporters of oilseed oil, as well as the country's largest exporter of bottled oil. The company is also Argentina's largest manufacturer of branded food products. Molinos produces a wide range of packaged foods for domestic consumption, including bottled oil, margarine, pasta, premixes, packaged flour, yerba mate, rice, cold cuts and frozen foods. In 2005 revenues reached US$913 million, of which 64% were exports. Oilseed crushing activities accounted for 55% of total revenues. The company's controlling shareholder is the Perez Companc family with a 63.7% equity stake. The remaining shares trade publicly in the Buenos Aires stock market.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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
Date:Nov 3, 2006
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