Fitch Affirms General Shopping Brazil's IDR at 'BB-'; Outlook Stable
Fitch Ratings has affirmed the ratings of General Shopping Brazil (GSB) and its fully owned subsidiaries as follows:
General Shopping Brasil S.A. (GSB):
-- Foreign currency Issuer Default Rating (IDR) at 'BB-';
-- Local currency IDR at 'BB-';
-- National scale ratings at 'A-(bra)'.
General Shopping Finance Limited (GSF):
-- Foreign currency IDR at 'BB-';
-- USD250 million perpetual notes: at 'BB-'.
General Shopping Investment Limited (GSI):
-- Foreign currency IDR at 'BB-'.
-- USD150 million subordinated perpetual notes at 'B'.
Simultaneously, Fitch withdraws the 'RR6' recovery rating of the subordinated perpetual notes. The IDR's of GSF and GSI have been linked to their parent company GSB through Fitch's 'Parent and Subsidiary Rating Linkage' criteria.
The Rating Outlook for GSB, GSF and GSI is Stable.
The credit ratings of GSB reflect the company's strong business position as one of the largest shopping center operators in Brazil's southeastern and southern regions. GSB owns stakes in 16 shopping centers that have a total owned gross leasable area (GLA) of 255,000 square meters (m2). These malls are modern and well located, with all but two of the malls being constructed within the past seven years. Occupancy trends have been positive and occupancy rates have been at about 96% during the past 24 months.
The ratings also positively factor in GSB's stable and predictable cash flow generation, adequate liquidity position and manageable debt amortization schedule. About 81,000 m2 of GSB's GLA has not been pledged as collateral for debt, which provides the company with an additional source of liquidity. GSB's credit ratings are constrained by its high leverage and aggressive capital expenditure plans. Further ratings constraints include the risk of completion delays for the company's aggressive growth plans, and the challenge of maintaining leasing rates at high levels. GSB's limited geographical and revenue diversification also are credit considerations. The company's top-20 tenants account for approximately 10% of its total revenues.
Leverage Grows as GSB Embarks Upon Aggressive Capex Plan
The company's total debt increased to BRL1.1 billion as of June 30, 2012 from BRL690 million as of Dec. 31, 2011. The increase in debt was due to the addition of BRL450 million of secured debt and the issuance of USD150 million of perpetual subordinated notes. GSB raised this debt to fund its capex plan and to improve its cash position.
GSB generated BRL109 million of EBITDA during the LTM ended June 30, 2012. The company's gross and net leverage ratios, as measured by total debt/EBITDA and net debt/EBITDA, were 9.7x and 5.9x, respectively, as of June 30, 2012. These leverage ratios are above those previously factored into the ratings. Fitch's revised base case considers the company's net leverage to reach levels of about 6.0x at the end of 2012, before declining slightly to 5.7x at the end of 2013.
Liquidity Remains Healthy; High Level of Unencumbered Assets:
As of June 30, 2012, GSB had BRL410 million of cash and marketable securities, which comfortably covers scheduled debt payments of BRL38 million during the second half of 2012 and BRL42 million during 2013. An additional payment of approximately BRL90 million related to a secured financing due in 2013 is already covered with resources allocated as restricted cash.
GSB's free cash flow (FCF) is expected to be negative by about BRL300 million during 2012, due to about BRL350 million of investments. This should result in a growth of the company's net debt to about BRL763 million as of Dec. 31, 2012 from BRL 577 million as of Dec. 31, 2011. GSB maintains approximately 28% of its total GLA as unencumbered assets. The estimated market value of these assets is approximately BRL400 million, which provides an additional source of liquidity. GSB's total investment property value is estimated at about BRL1.8 billion as of June 30, 2012.
Focus on Capex Plan Execution; GLA Expected to Reach 275,000 M2 by end of 2013:
GSB is currently implementing an aggressive capex plan that is primarily being funded with debt. Capex levels for 2012 and 2013 are projected to be approximately BRL319 million and BRL187 million, respectively. The 2012 figure includes the sale of minority stakes in properties, as well as the acquisition of Shopping Bonsucesso (GLA of 24,437 m2)for approximately BRL130 million during the third quarter of 2012.
During the third quarter, GSB also completed two important expansion projects, Prudente and Unimart, as well as a greenfield project -- Brasilia. These developments together represent an addition of 19,000 m2 of GLA, which is similar to the growth rate achieved by the company in 2011. The ratings incorporate Fitch's projection that strong occupancy levels and high growth rates will result in an increase in the company's EBITDA to approximately BRL126 million during 2012 from BRL98 million in 2011. For 2013, Fitch projects an EBITDA level of BRL165 million. Margins should continue to remain in the range of 70%.
The Stable Outlook incorporates the view that the company's liquidity will remain solid with a cash position around BRL350 million and that net leverage will remain stable at about 6.0x. A negative rating actions could result from a deterioration of the company's leverage due to: project delays, lower cash flow generation (EBITDA) by existing malls; and/or incremental debt associated with acquisition activity. A weakening of the company's liquidity position would also hinder credit quality and could result in a negative rating action. Considering the high leverage and aggressive capex plans, GSB's ratings are unlikely to be upgraded during the next 12 months.
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. 12, 2011;
-- 'Parent and Subsidiary Rating Linkage', Aug. 12, 2011.
-- Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis, Dec. 15, 2011.
Applicable Criteria and Related Research:
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology
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