Fitch Rates InterCement's Expected Note Issuance 'BB'

CHICAGO--()--Fitch Ratings publishes ratings to InterCement Participacoes S.A.'s (InterCement) as follows:

--Local currency Issuer Default Rating (IDR) 'BB';

--Foreign currency IDR 'BB';

--National long-term rating 'AA-'.

--Expected senior unsecured note issuance 'BB' to be issued by Cimpor Financial Operations B.V.

Fitch also publishes foreign and local currency long-term IDR's to InterCement's wholly owned subsidiaries InterCement Brasil and Cimpor Financial Operations of 'BB'. In addition, Fitch publishes local currency IDR of 'BB' and a national long-term rating of 'AA-' for InterCement Brasil.

The Rating Outlooks are Stable.

The notes will be issued by the company's wholly owned subsidiary, Cimpor Financial Operations B.V. and will be guaranteed by InterCement Participacoes S.A. and InterCement Brasil S.A. Proceeds from the notes are part of InterCement's liability management to refinance existing debt and extend its maturity ladder.

KEY RATING DRIVERS

Solid Business Position With A Diversified Portfolio:

The ratings reflect InterCement's position as a leading cement producer globally with solid market positions in South America (Brazil, Argentina and Paraguay), Europe (Portugal) and Africa (Egypt, Mozambique, South Africa and Cape Verde). Fitch views the company's business position as sustainable over the medium term based on its strong presence in markets that present high-growth profiles, strong brand recognition, scale of operations and continued synergies realized following the 2012 Cimpor acquisition, and the strategic location of its cement facilities and quarries.

InterCement ranks as one of the ten largest cement companies in the world with total consolidated cement sales of 28 million tons during 2013, and is the second biggest player in the Brazilian market with a market share of 18%, as measured by cement sales. The large scale of operations provides InterCement with competitive advantages, principally meaningful cost-efficiencies and integrated logistics. The company maintains a diversified portfolio of operations with cash flow generation, measured by EBITDA, from Brazil, Argentina and Paraguay, Portugal and Egypt representing 53%, 19%, 7%, and 7%, respectively, of its total EBITDA in 2013.

High Margins and Solid Operating Cash Flow:

InterCement's margins are among the highest within its industry globally and higher than many of its large peers. Keys to the company's strong margins include a favorable sales mix, fully integrated operations, and its large presence in the southeast region of Brazil. InterCement has a favorable product mix of approximately 70% bagged cement versus 30% bulk cement, as bagged cement is a higher volume product which contributes to its strong margins and robust cash flow generation. InterCement's EBITDA as of Dec. 31, 2013 was EUR742 million, which resulted in margins of 28%. Fitch projects EBITDA margins to be around 27%-28% during 2014 which are above industry average.

InterCement's net cash flow from operations was EUR260 million for 2013 which compared unfavorably to EUR373 million for 2012 due to higher interest and taxes paid during 2013. Growth capex has been high due to the aforementioned projects in Brazil, leading to negative FCF. InterCement paid total dividends to Camargo of BRL300 million during 2013 which was an increase compared to dividends of BRL75 million during 2012. Going forward, Fitch projects dividend levels to remain similar to 2014 over the near term as InterCement focuses on deleveraging, maintaining a solid capital structure, and investing in its Brazilian operations.

Strategic Capex Plan Incorporated, Business Deleverage Expected:

The company is executing a strategic capex plan to increase its annual production capacity from its existing 36 million tons of capacity by 2016. The capex plan will require a total investment of EUR300 million during the 2014-2016 period, with expansion capex levels of approximately EUR100 million in 2014 oriented primarily to the Brazilian operations. As a result, InterCement is expected to remain negative free cash flow (FCF) during 2014 and become positive FCF during 2015 and 2016.

The ratings incorporate InterCement's moderate financial leverage due to its recent Cimpor acquisition. InterCement had EUR3.7 billion of total debt and EUR1.3 billion of cash and marketable securities as of Dec. 31, 2013. The company generated EUR742 million of EBITDA, resulting in gross leverage and net leverage ratios of 5.0x and 3.3x. Fitch expects the company's financial leverage to continue to decline in 2014 driven primarily by increasing cash flow generation as the macro economic scenario in Brazil is expected to improve boosting cement sales, as well as lower net debt levels due to FCF generation.

Solid Liquidity:

Fitch views the company's debt amortization schedule as manageable and its cash position as adequate. As of Dec. 31, 2013, InterCement had EUR1.3 billion of cash and marketable securities. The company's debt repayment schedule is manageable with EUR51 million of debt amortization through 2014. InterCement is planning to refinance approximately USD500 million of debt through the issuance of a 10-year unsecured bond. The company's cash position post issuance is expected to remain stable at around EUR1 billion during 2014.

Credit Linkage With Corporate Group Incorporated:

The ratings positively factor in InterCement's strong credit linkage with its holding company, Camargo Correa, one of the largest Brazilian privately owned conglomerated, rated 'BB/OS' by Fitch. The cement business is viewed as a key component for Camargo's credit profile as this division accounts for 33% of Camargo's consolidated revenues and 45% of its EBITDA. It is less leveraged that the sum of the other businesses within the Camargo Correa group.

Camargo's credit ratings reflect the company's diversified portfolio of operations, solid market position in the industries in which it participates, the medium-term outlook and different degrees of cyclicality related to its core businesses, and adequate liquidity. The Stable Outlook incorporates the view that Camargo's credit profile will remain stable in the medium term. It considers the expectation that Camargo will manage its consolidated net leverage in the range of 3.5x to 4.0x during the short-to-medium term, while maintaining adequate liquidity.

Fitch believes that InterCement's parent company, Camargo, maintains adequate liquidity with BRL7.1 billion of consolidated cash and marketable securities as of Dec. 31, 2013. The companies directly controlled by Camargo face debt amortizations of BRL3 billion during 2014, which is comfortably covered by BRL6.6 billion of cash at these subsidiaries; most of this cash is held within the company's cement division. On a stand-alone basis, Camargo faces debt amortizations of BRL575 million and BRL687 million during 2014 and 2015, which will be covered by the company's received dividends levels, which are expected to remain stable at around BRL1 billion per year. Camargo's liquidity is further supported by the company's access to credit, as well as by its capacity to execute non-core assets sales if required.

Camargo's credit ratings also incorporate the structural subordination of the parent company debt to the debt at its operating companies; the company relies on dividends and interest and principal payments from operating subsidiaries to service its debt. The ratings also factor in the company's growth strategy which includes inorganic growth as an important component, as well as its good track record in executing acquisitions while keeping its capital structure and liquidity relatively stable over the medium term.

RATING SENSITIVITIES

Fitch would view a combination of the following as negative to credit quality: InterCement's lack of capacity or willingness to maintain its net financial leverage at less than 3.5x; adverse macroeconomic trends leading to weaker outlook for cement demand in Brazil during the medium term; and/ or debt-funded acquisitions.

InterCement's ratings could be affected positively by significant improvement in its cash flow generation, net leverage and liquidity metrics. A decline in total debt levels and sustained level of Net Debt / EBITDA of 3.0x could warrant an upgrade. A decline in the leverage of other subsidiaries of Camargo would also be viewed positively and could lead to positive rating actions.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', May 28, 2014;

--'National Ratings Criteria', Oct. 30, 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=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=837498

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Contacts

Fitch Ratings
Primary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gisele Paolino
Director
+55-21-4503-2624
or
Committee Chairperson
Ricardo Carvhalo
Senior Director, Latin America Corporates
+55 21 4503-2627
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gisele Paolino
Director
+55-21-4503-2624
or
Committee Chairperson
Ricardo Carvhalo
Senior Director, Latin America Corporates
+55 21 4503-2627
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com