Fitch Rates Alpek's Proposed Notes 'BBB-(exp)'
Fitch Ratings has assigned the following ratings to Alpek, S.A.B. de C.V. (Alpek)
--Foreign Currency Long Term Issuer Default Rating (IDR) 'BBB-';
--Local Currency Long Term IDR 'BBB-';
--Proposed up to USD600 million senior unsecured notes due up to 2022 'BBB-(exp)'.
The Rating Outlook is Stable
Alpek's ratings reflect its strong business profile in the petrochemical segment in Mexico and the Americas, supported by leading positions in its different product lines, especially in the polyester chain in North America; low cost structure as a result of important investments in technology, as well as geographic location and scale; solid customer base and end markets' resilience to economic downturns. The ratings consider the company's solid financial profile characterized by constant positive free cash flow generation and low leverage. Fitch expects that Alpek's ratio of net debt to EBITDA in the long term to be around 1.5x. Also incorporated in the company's ratings are the cyclical nature of the industry, strong competitive environment and Alpek's historic acquisitive track record.
Product and Geographic Diversification Supports Business Profile
Alpek's business are divided in the polyester chain (PTA, PET and fibers), through its subsidiary Grupo Petrotemex, S.A. de C.V. (Petrotemex, rated BBB-/Stable by Fitch), which represents approximately 70-75% of Alpek's consolidated revenues and EBITDA, and other plastics and chemicals segment, which main products are polypropylene (PP), expanded polystyrene (EPS), caprolactam (CPL) and fertilizers, among others. The company holds leading market positions in PTA and PET in North America, where prices are set using a cost plus formula, allowing Alpek's operations to maintain stable cash flows. In addition, the company is the sole producer of PP in Mexico through its joint venture (JV) with LyondellBasell, has important participation in Mexico and North American EPS markets through its JV with BASF and is the sole producer of CPL in Mexico with most of its production dedicated to exports.
Alpek's operations have maintained high utilization rates, which in turn has translated into better fixed cost absorption and stable cash flows. The company's customer base operates mostly in less volatile industries, such as food and beverage, packaging and consumer goods end markets. In addition, the company has long term relationships with suppliers and clients, and in the specific case of Petrotemex, long term contracts.
In recent years, Alpek growth through acquisitions, especially in the PTA/PET segment, and organic expansions has positioned it as a major player in the polyester chain in North America, which strengthens its business profile and allows it to operate in a less volatile market. The exit of some participants in U.S. has resulted in market rationalization and ease competitive pressures. Volumes in the region should be driven by stable customer demand and the expectation of no additional capacity in the near term. Fitch expects the company will continue investing in efficiency projects, as well as capacity growth, with a combination of green field investments and potential acquisitions.
Solid Financial Profile
The ratings consider the company's strong cash flow generation reflecting high and efficient capacity utilization rates, long term contracts and relationships with clients, cost-plus pricing formula in the PTA segment and strict cost and expenses control initiatives, among other factors. Also factored in the ratings is the company's growth strategy which has been financed with a combination of debt, internal generated funds and equity. Alpek's liquidity profile is solid and was strengthened with the proceeds from the recent IPO. Event risks is still present, nevertheless Fitch's analysis incorporates the company's strong commitment to support a robust financial profile going forward and that any likely investment will be completed with internally generated cash flows and debt. Net leverage may increase to approximately 2.0x but with a gradual reduction to 1.5x once the projects mature.
Low leverage and Adequate Liquidity
Alpek's leverage is low. After debt reduction coming from the recent IPO, the company's Total Debt to EBITDA for the last twelve months ended Sep. 30 2012 was 1.4x and Net Debt to EBITDA 0.6x. Fitch expects these credit metrics will remain relatively stable in the future.
As of Sep. 30, 2012, Alpek's cash and marketable securities was approximately USD462 million, short term debt was USD99 million and total debt USD1.06 billion. Total debt balance is expected to remain stable and debt maturities during 2013 are manageable at approximately USD100-120 million. On a pro-forma basis considering the proposed issuance of senior notes, debt maturities will be reduced to USD30-40 million in 2013. The company's liquidity is further supported by committed credit lines of USD310 million; availability under these facilities as of Sep. 30 2012 is approximately USD276 million.
Key Rating Drivers
A negative rating action could arise from a combination of sharp and consistent reductions in volumes, profitability and cash flow generation resulting in lower fixed-cost absorption and weaker main credit metrics. A larger than expected debt-financed acquisition that impacts the company's capital structure away from the target net debt to EBITDA of 1.5x on the long term should also pressure the ratings.
Positive rating actions are limited at the time and could be supported by consistent positive free cash flow generation through economic cycles combined with the expectation of lower leverage levels in the mid to long term.
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. 08 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Alberto Moreno, +52-81-8399-9100
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
Debora Jalles, +55-21-4503-2600
Sergio Rodriguez, CFA, +52-81-8399-9100
Elizabeth Fogerty, +1 212-908-0526