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02 Dec 2019
New York, December 02, 2019 -- Moody's Investors Service (Moody's) affirmed today Orbia Advance
Corporation, S.A.B. de C.V.'s
(Orbia) Baa3 senior unsecured rating. The outlook is stable.
Orbia's Baa3 rating reflects its strong credit metrics and market
position, ample liquidity and comfortable debt maturity profile.
It also incorporates the company's adequate margin for the rating category,
coupled with our expectation that its profitability will further benefit
from its vertical integration into ethylene that reduced costs substantially,
and the benefits from its growth -organic and through acquisitions-
in high margin value-added businesses.
Conversely, the rating considers Orbia's strategy to grow
through acquisitions, which increases execution risk. This
risk is mitigated by the company's good track record integrating
acquisitions while capturing synergies.
Orbia's leverage reached 3.9x as of March 31, 2018 following
its debt financed acquisition of Netafim. Since then, the
company has paid about $800 million in debt and reduced its adjusted
debt/EBITDA to 3.3x as of September 30, 2019. Netafim's
acquisition followed Orbia's strategy to increase its portfolio of specialty
products and solutions, while diversifying and expanding its end
markets toward the high-growth worldwide agricultural market.
The company does not anticipate any material acquisitions in 2020-21.
As a result, we expect its adjusted debt/EBITDA to stabilize around
2.5x by year-end 2020, with adjusted EBITDA/interest
expense over 6.5x.
During 2019, Orbia's EBITDA was hurt by lower profitability
in its vinyl and polymer businesses. The company's vinyl
operation was hurt mainly by lower caustic soda prices that more than
offset strong results in its datacom business because of a better mix
of products, lower raw material costs and better performance of
Netafim. Moreover, the illegal importation and selling of
refrigerants in the European Union, breaching European regulations
on F-gas, has been pressuring the company's fluor business.
We expect Orbia's profitability to improve during 2020 as caustic
soda prices recover. We estimate global caustic soda demand will
increase, mainly driven by the growth in the textile market in the
Asia Pacific region, in particular from India and China.
In the medium term, a solution to the practice of dumping refrigerant
gases in the European Union would also benefit the company's top line
Orbia has adequate liquidity. The company reported short-term
debt of $1,053 million as of September 30, 2019 which
include $583 million related to letters of credit. As of
the same date, Orbia's cash on hand of $593 million
can cover 1.3x its short-term debt -- excluding the
letters of credit. Orbia's liquidity is further supported
by its positive free cash flow generation and a $1.5 billion
committed revolving credit facility that is fully available. The
company posted, on average, free cash flow of $375
million per year in 2017 and 2018. Orbia has a comfortable long-term
debt maturity profile with $302 million due 2020, $37
million due 2021, $915 million due 2022, $18
million due 2023, and $2,152 million due 2024 and beyond.
The stable outlook reflects our expectation that Orbia's leverage
will normalize toward historical levels over the next 12 months.
The outlook also incorporates our expectation that Orbia will maintain
adequate liquidity and credit metrics for the rating category.
Orbia's ratings could be upgraded if the company maintains strong
liquidity and improves its profitability. Quantitatively,
an upgrade would require EBITDA margins close to 20%, adjusted
debt/EBITDA below 2.5x and adjusted EBITDA/interest expense above
The ratings could be downgraded due to the deterioration of the company's
margins such that EBITDA margin falls below 15%, if adjusted
debt/EBITDA increases, for example because of a debt-financed
acquisition, above 3x on a sustained basis with no clear plan to
de-lever. A deterioration in liquidity or an acquisition
that is not accretive could also result in a downgrade.
The principal methodology used in these ratings was Chemical Industry
published in March 2019. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
Orbia Advance Corporation, S.A.B. de C.V.
is one of the world´s largest producers of water conduction products
and solutions for building and infrastructure, the leader in precise
irrigations technology, the leader in the data conduction market
in the US, the global leader in production of PVC specialty resins,
one of the global Top 10 largest PVC producers, and has the biggest
fluorspar reserve globally in its mine in San Luis Potosí,
México. The company manufactures its products under three
divisions: (1) the Vinyl division produces chlorine, caustic
soda, sodium hypochlorite, phosphate, ethylene,
vinyl chloride monomer, PVC general purpose and specialty resins
and PVC compounds; (2) the Fluent division which produces PVC,
polyethylene and polypropylene pipes and fittings, polypropylene
water conduction products and solutions for building and infrastructure,
geosynthetics (woven and non-woven), irrigation systems (water
management), and datacom systems and infrastructure products;
and (3) the Fluor division produces fluorinated products, hydrofluoric
acid and refrigerant gases. The company reported revenues of $7,041
million over the twelve months ended September 30, 2019.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
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case where the transaction structure and terms have not changed prior
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affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
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the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
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Mexico, DF 11000
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Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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