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Rating Action:

Moody's assigns Baa3 rating to Votorantim Industrial and to Votorantim Cimento's debt issuance

31 Mar 2011

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
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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