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Rating Action:

Moody's assigns (P)Ba3 and A3.mx ratings to Elementia's proposed certificados bursátiles

 The document has been translated in other languages

11 Oct 2010

Approximately MXN3 billion of debt securities affected

Mexico, October 11, 2010 -- Moody's de México has assigned provisional (P)Ba3 rating and A3.mx ratings to Elementia, S.A.'s proposed MXN3 billion in senior unsecured certificados bursátiles (local notes, ELEM 10) due 2015. At the same time, Moody's assigned a provisional (P)Ba3 Corporate Family Rating to Elementia. The rating outlook is stable. Moody's has assigned the ratings on a provisional basis pending the successful issuance of the proposed notes.

Elementia is a major manufacturer of semi-finished copper and aluminum products and various types of fiber cement and concrete products, with revenues of MXN12.6 billion (USD975 million) for the 12 months ended June 30, 2010. The company mainly operates in Mexico but is also present in seven Central and South American countries and exports products to various other markets, most importantly the U.S. Elementia is controlled by Grupo Empresarial Kaluz (not rated) and Kaluz's owners, the Del Valle family, which together hold a 51% equity interest. Shareholders also include Grupo Carso (not rated) with a 46% interest, which Carso obtained when it sold the copper and aluminum products business of its Nacobre unit to Elementia in June 2009.

Moody's expects Elementia to use the net proceeds from the local notes issuance to refinance around half of the debt outstanding under its existing USD450 million 5-year term loan.

Assignments:

..Issuer: Elementia S.A.

....Senior unsecured certificados bursátiles (local notes) due 2015, (P)Ba3 and A3.mx

....Corporate Family Rating, (P)Ba3

....Outlook, stable

RATINGS RATIONALE

Elementia's (P)Ba3 ratings reflect the company's solid market positions for manufactured fiber cement, copper and aluminum products in Mexico and its various Central and South American markets. They also take into account its modest financial leverage, its solid profit margins, and the expectation of fairly stable earnings generation based on cost-plus pricing mechanisms in the metals division, which helps mitigate volatile metal input costs. Moody's also notes the company's seasoned senior management team and the financial strength and reputation of its two principal shareholders, Carso and Kaluz.

The ratings are constrained by Elementia's limited operating scale and business diversification relative to its rated peers, the company's exposures to cyclical industrial and construction end markets, and its sizeable investment plan over the next two to three years that will improve vertical integration in fiber cement but also pressure free cash flow. The company also faces increasing amortization requirements under its term loan, has limited cushion under its maximum leverage covenant, and is exposed to base metal cycles, which from time to time can cause working capital swings and squeeze liquidity.

The ratings also factor in the company's short track record in its current business configuration (as it only acquired its metals operation in June 2009) and its exposure to chrysotile, a form of asbestos, in its fiber cement segment.

The proposed local notes are rated at the same level as the (P)Ba3 Corporate Family Rating because of the expected preponderance of the senior unsecured debt class in Elementia's debt structure post issuance. The notes will be guaranteed by operating subsidiaries accounting for over 85% of consolidated assets and EBITDA, will benefit from cross-default provisions and contain financial covenants similar to those of the company's term loan. However, the notes lack other protective provisions such as, for example, negative pledge, asset sales or change of control clauses.

The last rating action for Elementia was on May 13, 2010, when Moody's withdrew the company's provisional corporate family and debt ratings after it canceled a proposed global notes issuance.

The stable rating outlook reflects Moody's expectation that Elementia will successfully conclude the proposed local notes issuance, grow earnings in line Moody's expectations over the near to medium term (as it implements various efficiency and commercial initiatives), and maintain adequate liquidity as it carries out its upcoming investment program.

The principal methodology used in rating Elementia was Moody's Global Manufacturing Industry rating methodology, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab (December 2007, document #106352). Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Elementia, S.A., headquartered in Mexico City, Mexico, is a major manufacturer of semi-finished copper and aluminum products and various types of fiber cement products. For the 12 months ended June 30, 2010, the company generated MXN12.6 billion (USD975 million) of revenues.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating is/are the following: parties involved in the ratings, parties not involved in the ratings, public information.

Moody's de México considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning 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.

Mexico
Sebastian Hofmeister, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Telephone:+52-55-1253-5700

New York
Steven Oman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico

Moody's assigns (P)Ba3 and A3.mx ratings to Elementia's proposed certificados bursátiles
No Related Data.
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