Fitch: Divestiture of CPFL a Credit Positive for Camargo Correa; No Rating Impact

CHICAGO--()--Fitch Ratings views Camargo Correa S.A's (Camargo Correa 'BB-'/Outlook Stable) announced sale of its 23.6% interest in CPFL Energia S.A. (CPFL; 'AA(bra)'/Outlook Negative) as a credit positive. Camargo Correa plans to sell its interest to State Grid Corporation of China (SGCC; 'A+'/Outlook Stable) for BRL5.85 billion.

However, given the weakness of Camargo Correa at its current rating level, and uncertainties regarding the timing of the transaction and use of the proceeds, this announcement does not lead to a change in the company's current ratings and Outlook. The transaction is still subject to approval from government authorities.

This sale is expected to alleviate refinancing pressure for Camargo Correa during the next 24 months. At the holding company level, Carmargo Correa faces BRL2.7 billion of debt maturities during this time period. Its controlled subsidiaries, excluding InterCement, have additional maturities of BRL2.4 billion.. These figures compare unfavorably with cash of approximately BRL2.7 billion and nonmeaningful operating company dividends to the holding company. Positively, Camargo has a BRL2 billion stand-by facility available until May 2017.

Uncertainties remain regarding effective use of the asset sale proceeds, such as if there will be any additional equity support for InterCement Participacoes S.A. (InterCement; 'BB-'/Outlook Stable). InterCement, Camargo Correa's cement division, accounted for 60% of Camargo's consolidated revenues and 69% of its EBITDA during 2015. It is currently highly leveraged, as a result of plummeting demand for cement in Brazil.

On a consolidated basis, Camargo Correa's pro forma leverage ratio would decline to 3.6x from 5.9x at Dec. 31 2015. On a standalone basis (holding company), Camargo would have a pro forma net cash position of BRL2.35 billion, considering holding company debt of BRL4.4 billion and cash of BRL928 million at the end of December 2015.

The associated risks of the Lava-Jato investigation continue to represent a negative headwind for Camargo Correa's ratings. The company has been challenged to replace its backlog, which extends only through 2018.

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

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Contacts

Fitch Ratings
Primary Analyst
Debora Jalles
Director
+1-312-606-2338
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Debora Jalles
Director
+1-312-606-2338
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com