Fitch Affirms Gruma's Ratings at 'BB'; Outlook Revised to Stable

MONTERREY, Mexico--()--Fitch Ratings has affirmed the ratings of Gruma, S.A.B. de C.V. (Gruma) as follows:

--Long-term Foreign Currency Issuer Default Rating (IDR) at 'BB';

--Long-term Local Currency IDR at 'BB';

--USD300 million perpetual bonds at 'BB'.

The Rating Outlook is revised to Stable from Positive.

The Stable Outlook reflects the expected leveraging effect on Gruma's capital structure that will result from the debt-funded acquisition of the 23.16% equity stake that the Archer Daniels Midland Company has in Gruma and other ownership in certain subsidiaries. The incremental debt for USD450 million maturing in one year will increase the company's gross leverage measured as total debt-to-EBITDA to approximately 3.3x by the end of 2013. Fitch expects that the company will continue with its commitment to gradually improve its leverage in the medium to long term.

On a pro forma basis considering the loan of USD450 million, Gruma's total debt for year-end 2012 would reach close to USD1.5 billion and the gross leverage ratio should be approximately 3.6x. Excluding the Venezuela operations, Fitch estimates that total debt to EBITDA would be 4.2x. As of Sept. 30, 2012, the company had a total debt to EBITDA ratio of 2.4x, lower than the 2.7x at year-end 2011.

Fitch takes into account that Gruma will refinance its USD450 million credit during the first half of 2013, improving its debt profile and financial flexibility. The company's liquidity position is adequate, with cash and marketable securities as of Sept.30, 2012 of MXN1.9 billion, which combined with annual funds from operations (FFO) generation of MXN2.6 billion and available committed credit lines, sufficiently covers its short-term debt obligations of MXN2 billion. The company does not face any significant debt maturity until 2016.

Fitch expects that Gruma will use any excess of cash generation to reduce leverage. FFO is expected to maintain its trend in 2013, reaching levels above MXN3 billion which combined with the company's strategy to reduce capital expenditures below historical levels in the following years and no dividend policy, will contribute to free cash flow to be used towards debt reduction.

Fitch notes that in 2013, Gruma's strategy will be oriented towards organic growth and profitable operations, resulting in a possible slight decrease in sales and volume growth coming from the optimization of SKUs, distribution routes and some facilities. In addition, profitability should remain relatively stable as higher pricing, hedging of corn and wheat prices by Gruma Corporation, and productivity initiatives would partially offset volatility associated with its main raw materials. The company's consolidated net sales continued their upward trend in 2012, supported by higher volume and better pricing, while profitability improved despite higher commodity prices. During the nine months ending Sept. 30, 2012, consolidated net sales increased 17% driven mainly by the volume growth coming from the integration of the acquisitions in 2011 and better pricing. In terms of profitability, EBITDA margins improved slightly to 8.3% from 8.1% for the same period.

Gruma's ratings are supported by its solid business profile as one of the largest producers of corn flour and tortillas in the world, strong brand equity, and good operating performance. The ratings also incorporate the company's geographic diversification and hard currency revenue with nearly 42% of its total sales generated by Gruma Corporation with has operations in the U.S. and Europe. The company's ratings reflect its exposure to the volatility in prices of its main raw materials, corn and wheat, and the uncertainty derived from the nationalization of the Venezuelan operations.

What Could Trigger A Rating Action

Positive rating actions may result from a combination of debt reduction, stronger operating results, and stable cash flow generation that leads to a sustained improvement in the company's gross leverage ratio to below 2.5x. Conversely, negative rating actions could occur if the company's gross leverage permanently remains beyond the pro forma levels including the USD450 million of incremental debt, as a result of operational factors or adverse market conditions.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', Aug. 8, 2012.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', Aug. 8, 2012;

-- 'National Ratings Methodology Update', Jan. 19, 2011.

Applicable Criteria and Related Research:

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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Contacts

Fitch Ratings
Primary Analyst
Rogelio Gonzalez, +52-81-8399-9100
Associated Director
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
or
Secondary Analyst
Viktoria Krane, +1 212-908-0367
Director
or
Committee Chairperson
Sergio Rodriguez, CFA, +52-81-8399-9100
Senior Director
or
Elizabeth Fogerty, +1 212-908-0526 (New York)
Media Relations
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Rogelio Gonzalez, +52-81-8399-9100
Associated Director
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
or
Secondary Analyst
Viktoria Krane, +1 212-908-0367
Director
or
Committee Chairperson
Sergio Rodriguez, CFA, +52-81-8399-9100
Senior Director
or
Elizabeth Fogerty, +1 212-908-0526 (New York)
Media Relations
elizabeth.fogerty@fitchratings.com