Fitch Affirms Cresud's IDR at 'B-'; Outlook Negative

BUENOS AIRES, Argentina--()--Fitch Ratings has affirmed the ratings of Cresud S.A.C.I.F. y A. (Cresud) as follows:

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

--Local Currency IDR at 'B-';

--USD60 million senior unsecured bullet notes due in 2014 at 'B-/RR4'.

The Rating Outlook is Negative

Cresud's ratings reflect the company's exposure to Argentina's business climate and economic conditions and its leading business position in the real estate and agribusiness sectors.

RATING DRIVERS

Cresud's foreign currency (FC) IDR continues to be constrained at 'B-' because of the 'B-' country ceiling of Argentina. Cresud's 'B-' local currency (LC) IDR is held back by above-average risks associated with operating in the real estate segment in Argentina and by the volatile cash flow of its agribusiness division, which is subject to weather conditions and commodity prices.

The Negative Rating Outlooks on Cresud's FC and LC IDRs are in line with those assigned to Argentina's sovereign ratings and reflect the high degree of uncertainty surrounding Argentina's business climate and economic conditions.

Cresud's ratings consider its position as a leading company in the real estate and agribusiness sectors in Argentina. Cresud owns 64.5% of IRSA Inversiones y Representaciones S.A. (IRSA; rated with a 'B+' LC IDR by Fitch), a leading real estate company in Argentina dedicated to real estate development, office rentals, and shopping mall operations through Alto Palermo (APSA), which is a 95.68% owned subsidiary of IRSA. Cresud has an important portfolio of farms in Argentina and also has a presence in Bolivia, Paraguay, and in Brazil through its 39.64% stake in BrasilAgro. The results from the agribusiness segment were negatively affected during the last fiscal year ended June 30, 2013 by poor weather conditions.

Fitch links the ratings of Cresud and IRSA. Cresud's 'B-' LC IDR is notched down from IRSA's 'B+' LC IDR because of the structural subordination of its debt and its weaker stand-alone financial profile. This linkage reflects factors such as strong strategic and operational ties and the fact that IRSA's upstream dividends represent a significant part of Cresud's cash flow from operations. The dividend flow to Cresud from IRSA is expected to be relatively stable. During fiscal 2013, Cresud received dividends of approximately USD15 million.

The ratings also reflect moderate consolidated leverage, as well as manageable liquidity, as a result of unencumbered assets and land that could be sold. Regarding the real estate industry, the emphasis of Fitch's methodology is on portfolio quality, diversity, and the size of the asset base. Cresud's consolidated portfolio of real estate assets is strong, with USD 1.1 billion of book value as of Sept. 30, 2013. This would be higher if valued at market value. These assets are mostly unencumbered and provide Cresud and its direct and indirect subsidiaries with a degree of financial flexibility.

On a consolidated basis, Cresud had USD699 million of sales and generated USD230 million of EBITDA during the LTM ended September 2013. These figures compare with USD1 billion of consolidated debt (net debt was USD911 million), resulting in a net debt-to-EBITDA ratio of 4.4x and an EBITDA-to-interest expense ratio of 2.5x. Long-term debt accounts for 68% of total debt and includes USD420 million of senior notes at APSA and IRSA that mature between 2017 and 2020. Cresud's consolidated EBITDA was USD230 million during LTM September 2013, mostly from operations in the real estate segment.

The company's stand-alone debt reached USD313 million as of Sept. 30, 2013. Short-term debt accounted for 51% of Cresud's stand-alone total debt. During the period October-September 2013, the company extended the average life of its debt through the issuance of approximately USD110 million of senior unsecured notes in the local market with a five-year tenor. Cresud's debt is supported by its asset portfolio. Its main assets include participations in IRSA and BrasilAgro, its portfolio of farms, and its inventory of crops and livestock. A significant portion of Cresud's assets could be sold in traded markets, providing Cresud with additional liquidity to support its short-term debt obligations.

RATING SENSITIVITIES

The ratings are expected to be driven primarily by positive developments in Argentina's business climate and economic conditions. Fitch expects that Cresud will manage its balance sheet to a consolidated net debt-to-EBITDA ratio of around 4.0x.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814040

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Contacts

Fitch Ratings
Primary Analyst
Jose Vertiz, +1-212-908-0641
Director
Fitch Ratings, Inc.
One State Street Plaza,
New York, NY 10004
or
Secondary Analyst
Dan Kastholm, CFA, +1-312-368-2070
Managing Director
or
Committee Chairperson
Joe Bormann, CFA, +1-312-368-3340
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Jose Vertiz, +1-212-908-0641
Director
Fitch Ratings, Inc.
One State Street Plaza,
New York, NY 10004
or
Secondary Analyst
Dan Kastholm, CFA, +1-312-368-2070
Managing Director
or
Committee Chairperson
Joe Bormann, CFA, +1-312-368-3340
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com