Approximately USD 500 million in debt securities affected
Sao Paulo, March 31, 2011 -- Moody's Investors Service has assigned a Baa3 global scale issuer
rating to Votorantim Industrial S.A. (VID) and a Baa3 foreign
currency rating to the senior unsecured guaranteed notes due 2041 to be
issued by Votorantim Cimentos S.A. (unrated) and fully and
unconditionally guaranteed by VPAR and VID. The ratings outlook
is stable. The proposed notes issuance is part of Votorantim's
liability management strategy and will not increase the group's leverage
as the net proceeds will be entirely used to refinance existing debt,
consequently improving its debt maturity profile. The rating of
the proposed notes considers Votorantim's low level of secured debt on
a consolidated basis, and is not constrained by Brazil's Baa2 (outlook
positive) foreign currency country ceiling. Simultaneously,
Moodys has affirmed the Baa3 senior unsecured issuer rating for VPAR as
well as all debts related to VPAR.
Rating assigned are as follows:
Issuer: Votorantim Industrial S.A.
- Senior Unsecured Issuer rating: Baa3 (global scale);
Aa1.br (Brazilian national scale)
Issuer: Votorantim Cimentos S.A.
- Approximately USD 500 million Senior unsecured guaranteed notes
due 2041: Baa3 (foreign currency)
Ratings affirmed:
Votorantim Participações S.A.
- Senior Unsecured Issuer rating: Baa3 (global scale);
Aa1.br (Brazilian national scale)
Issuer: Voto - Votorantim Overseas Trading Operations III
Ltd (Cayman Islands)
- USD 208 million senior unsecured guaranteed notes due 2014:
Baa3 (foreign currency)
Issuer: Votorantim Cimentos S.A.
- EUR 750 million senior unsecured guaranteed notes due 2017:
Baa3 (foreign currency)
Issuer: Companhia Brasileira de Aluminio
- USD 750 million senior unsecured guaranteed notes due 2021:
Baa3 (foreign currency)
The outlook for all ratings is stable.
RATINGS RATIONALE
The Baa3 issuer ratings of VPAR and VID reflect the combination of the
group's size as one of the largest Brazilian industrial conglomerates
with good business diversification, its cost-competitive
operations based on high vertical integration of its operations that have
supported above industry average operating margins on a consolidated basis,
in spite of the heavy concentration of its industrial activities in commodity
products. While depending on the Brazilian economy to generate
a substantial portion of its consolidated revenues, Votorantim benefits
from leading market positions in virtually all operating segments.
Leverage on a net debt basis (considering a minimum cash balance of BRL
3 billion) has declined as weaker quarters roll off so that Adjusted Net
Debt to EBITDA (as defined by Moody's) is approaching 3.0x which
is adequate for the Baa3 rating. Liquidity remains strong based
on hefty cash position comfortably covering debt maturities until 2013
year-end. Votorantim has made considerable improvement in
terms of the timeliness and content of financial disclosure, including
the regular publication of cash flow statements, comprehensive footnotes
and summarized consolidating financial statements for individual businesses.
VPAR's rating of Baa3 incorporates no benefit from the A3 (outlook stable)
rating of its 50% owned Banco Votorantim, which represents
some 21% of consolidated net revenues and is run independently.
Our comments on VPAR's performance are limited to the industrial operations.
Moody's opinion on Banco Votorantim is available at www.moodys.com.
In 2010 Votorantim continued to report improved operating performance
as a result of overall improved market conditions for cement in Brazil
and increased demand and prices for most commodities produced by the group
such as zinc, nickel, aluminum and market pulp. Despite
the currently strong Real that has placed negative pressure on margins,
Votorantim has managed to reduce fixed costs and reported healthy EBITDA
margin of 24% in 2010. Nevertheless, free cash flow
in 2010 was negative still reflecting significant investments in capacity
expansion of cement, long steel, zinc and nickel, as
well as an expansion of working capital. We expect debt protection
metrics to improve as those investments mature.
The reviewed loan documentation of the proposed notes anticipates that
VPAR's guarantee would be released (leaving only the remaining guarantee
of VID) upon the occurrence of certain events, including the notes
being rated investment grade at the same level or above VPAR's current
ratings by at least two rating agencies after such release. As
is the case with the existing rated notes, the proposed notes are
rated at the same level as VPAR's Baa3 senior unsecured issuer rating
based on cross-default provisions involving substantially all of
the group's major operating subsidiaries for a significant amount of consolidated
debt. The Baa3 rating on the notes is also based on the guarantee
of VID,which is rated similarly as VPAR as it holds virtually all
of the industrial businesses of the group. Accordingly, the
release of VPAR's guarantee for the proposed notes will not cause
a change in the notes Baa3 rating.
The stable outlook incorporates Moody's belief that Votorantim will continue
to focus on free cash flow generation and accelerate leverage reduction,
while maintaining strong liquidity, benefiting from lower capital
spending, increased capacity from matured investments and overall
favorable market conditions for commodities.
A positive pressure on Votorantim's ratings or outlook could occur if
Total Adjusted Net Debt (Total Debt less cash available for debt reduction)
to EBITDA declines further below 3x and Free Cash Flow from existing operations
to Total Adjusted Net Debt approaches 10% on a sustainable basis.
Also, the maintenance of strong liquidity would be necessary for
a positive rating action.
Since Moody's expects Votorantim's operating performance to further improve
as investments in expansion mature and positively impacting overall credit
metrics, a negative rating action in the near term is unlikely.
An unexpected liquidity deterioration, however, could place
negative pressure on the rating.
Moody's last rating action for Votorantim occurred on September 27,
2010 when we assigned a Baa3 foreign currency rating to Votorantim Cimentos'
proposed senior unsecured perpetual notes, which issued was postponed
due to deteriorated market conditions.
The principal methodology used in this rating was Global Mining Industry
published in May 2009.
Moody's National Scale Ratings (NSRs) are intended as relative measures
of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale ratings in that they are not globally
comparable with the full universe of Moody's rated entities, but
only with NSRs for other rated debt issues and issuers within the same
country. NSRs are designated by a ".nn" country
modifier signifying the relevant country, as in ".mx"
for Mexico. For further information on Moody's approach to national
scale ratings, please refer to Moody's Rating Implementation Guidance
published in August 2010 entitled "Mapping Moody's National Scale
Ratings to Global Scale Ratings."
Votorantim Participações S.A. is the holding
company of one of Brazil's largest conglomerates with a diverse business
portfolio that includes banking, metals and mining, pulp and
paper, cement, agribusiness and chemicals. Votorantim
reported consolidated net revenues of USD 16.8 billion in 2010,
thereof some 79% deriving from its industrial operations and 21%
from its banking business.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Sao Paulo
Richard Sippli
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300
New York
Mark Gray
MD-US and Amer Corporate Fin
Corporate Finance Group
Moody's Investors Service
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Moody's assigns Baa3 rating to Votorantim Industrial and to Votorantim Cimento's debt issuance