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Global Credit Research - 03 Dec 2010
This is a first time rating
Buenos Aires, December 03, 2010 -- Moody's Latin America has assigned a first time B3 global scale
and Baa2.ar national scale rating to Raghsa's USD 100 million
proposed notes and a B3 corporate family rating (Baa2.ar national
scale corporate family rating). The rating outlook is stable.
The B3/Baa2.ar ratings reflect Raghsa's strong brand name
and position in the local market, good asset quality and its management's
solid track record in the industry. The company's high occupancy
rates and healthy tenants base also supports the ratings and business
model. Other factors supporting the ratings are Raghsa's
good credit metrics and low leverage for the rating category.
Key ratings challenges, are Raghsa's small size relative to
industry peers, its portfolio concentration in the city of Buenos
Aires and historical margin volatility. Raghsa's aggressive
growth plans is also a key rating challenge, which is somewhat mitigated
by the expected increase in lease revenues, which represent a more
stable earnings source.
Raghsa proposes to issue USD 100 million senior unsecured notes with a
final maturity in 2016, amortizing 50% on year 2015 and the
remaining 50% at final maturity. The notes have various
covenants including: limitations on the incurrence of additional
debt, guarantees, and restricted payments. The proceeds
from the notes will be used to refinance approximately USD 16 million
of notes outstanding; USD 21 million of bank loans as well as to
fund part of the company's capital expenditure plan, which includes
new developments and expansions.
Raghsa is a leading real estate operating company in Argentina,
that currently owns three office buildings, comprising 80.146
square meters of leasable area. Moody's ratings incorporate
Raghsa's high tenant quality and high portfolio occupancy,
mitigated by high tenant concentration with one of its key tenants representing
more than 25% of its leases revenues. In addition,
Raghsa is a leading developer of top quality residential apartments,
under a well known brand name in the real estate industry in Argentina.
Raghsa's recent developments in the residential segment were almost
completely sold before the construction was finished, bolstered
by Le Parc brand name. Advanced payments from customers are usual
in the market and have helped Raghsa to fund those developments.
These strengths, however, are mitigated by the company's limited
track record as a public company relative to its global peers.
Raghsa is a family owned, private company, only considered
as public due to the Argentine public offering regime under which it has
issued the notes in the past. Although it's expected to continue
to be under the public offering regime, corporate governance provisions
are also limited due to the family ownership structure.
Raghsa also has an aggressive growth plan and a very large development
pipeline in relation to its current assets' portfolio, which
may translate into continued earnings volatility and funding risk.
The company's current contractual debt profile is comfortable, although
the company will need external financing to develop its current investment
plan. The proposed notes will help meet its current investment
goal. We note, however, that despite it's the
amortizing profile of the proposed notes, the notes will create
a challenging debt maturity schedule as Raghsa will have to deal with
two large debt payments.
Moody's noted that Raghsa's liquidity and funding have been reliant
on internally generated cash as well as bank loans and equity contributions
from its main private shareholders. Furthermore, most of
Raghsa assets are unencumbered, potentially offering an additional
source of financing. However, like most companies in Argentina,
Raghsa has no committed credit facilities. Up to now, Raghsa
has been able to tap the local capital markets only once, when it
issued USD 38 million in local bonds. Moody's acknowledges
that the proposed issuance will contribute to increase Raghsa's
visibility in the market as well as to fund its growth and development
The stable outlook incorporates Moody's expectation that Raghsa's credit
metrics will improve as the company grows organically through its current
development pipeline, while maintaining a stable revenue base from
its current portfolio leases.
The company's small size, aggressive growth strategy and limited
access to alternative sources of funding are challenges to ratings improvement.
Expected relatively high leverage -measured as total debt to total
assets- also challenges a rating upgrade.
However upward rating momentum could occur should the company continues
to make progress in its growth strategy accompanied by material improvements
in its debt profile: increase in size closer to US$ 250 million
in total assets and weighted debt maturities lower than 25% of
Moody's noted that a downgrade would likely result from greater
than expected margins volatility or from a significant decline on Raghsa's
profit margins such that EBITDA margin drops below 35%.
Any increase debt or encumbering its portfolio could also prompt a rating
downgraded. In particular, if Debt to EBITDA exceeds 6x or
if the ratio of debt to gross assets exceeds 90%, the ratings
could also be downgraded.
This is the first time Moody's rates Raghsa S.A.
Headquartered in Buenos Aires, RAGHSA S.A. is an Argentinean
family owned company, that has been engaged in the construction,
development, ownership and leasing of residential and commercial
properties mainly located in Buenos Aires, for more than 30 years.
As of August, 2010 Raghsa's reported total assets of ARS 628
million (approximately USD 160 million) and equity of ARS 358 (approximately
USD 90 million).
The principal methodology used in rating Raghsa S.A. was
the Global Rating Methodology for REITs and Other Commercial Property
Firms published in July 2010. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found on Moody's website.
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 ".ar"
for Argentina. 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."
Information sources used to prepare the credit rating are the following:
parties 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 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
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Please see the ratings disclosure page on our website www.moodys.com
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Vice President - Senior Analyst
Corporate Finance Group
Moody's Latin America, Calificadora de Riesgo
JOURNALISTS: (800) 666 -3506
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Senior Vice President
Financial Institutions Group
Moody's Investors Service
Moody's Latin America, Calificadora de Riesgo
Moody's rates B3/Baa2.ar Raghsa USD 100 million proposed notes; outlook stable
Cerrito 1186, 11th fl
Buenos Aires C1010AAX
No Related Data.
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