Fitch Ratings has affirmed the '
Fitch has also affirmed the Long-Term Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs) of GMXT's 74% owned subsidiary,
The ratings consider the companies' dominant position in the Mexican railway industry, their revenues diversification from multiple industries, high profit margins, healthy liquidity position and conservative capital structures.
The Rating Outlooks for GMXT, GFM and Ferromex remain Stable.
Key Rating Drivers
Strong Business Profile: GMXT is the leading railway company in
Competition with other means of transportation is generally based on price, as well as on the quality and reliability of the service provided. Other factors affecting competition are delivery time, security and capacities. Ferromex has the advantages of having the longest railroad system in
Favorable Environment Strengthens Performance: For the LTM as of
Fitch expects an average revenue growth of around 5% by 2025, driven by sectors that continue to perform favorably, such as Industrials and Energy, and some potential recovery in others, such as Agriculture and Automotive. Revenue growth may moderate from previous years as a result of a possible mild recession in
Rating Linkage: Fitch equalizes the ratings of GFM with GMXT through its Parent and Subsidiary Linkage Criteria. Fitch uses the stronger subsidiary path outlined in its criteria to analyze the relationship between GFM with GMXT, resulting in a view that the consolidated credit profile is aligned with GFM's 'BBB+' FC and LC IDRs. The consolidated rating approach to the credit ratings of GFM and GMXT reflect the absence of legal ring fencing, as well as open access and control of GFM's cash by GMXT with strong operational and strategic incentives.
A downgrade of
Strong Leverage Profile: Fitch expects total adjusted debt/EBITDAR at GMXT to be below 2.0x over the rating horizon. Declining leverage is expected to be driven by the amortization of debt according to the repayment schedule, as well as the growth and efficiency of its operations as continued benefits from implementing precision scheduled railroad, which entails improving operating efficiency by reducing train starts and better utilizing assets improving train length and speed.
Additionally, the company is currently implementing a multiannual strategy to update some locomotives to use liquefied natural gas that will generate more efficiencies in terms of fuel consumption costs.
Solid Cash Flow Generation: The transportation division of
Derivation Summary
The ratings of GMXT and subsidiaries reflect their strong business profile as leaders in the railroad market in
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer Include:
Average revenues increase in USD terms of 6% in 2022-2025;
Average EBITDA margin calculated by Fitch around 42% in 2022-2025;
Capex of around 13% of revenues in 2022-2025;
Average dividends of
Total adjusted debt/EBITDA below 2.0x.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
While Fitch does not foresee any positive rating action over GFM in the medium term on a standalone basis, a positive rating action on
A sustained Net Debt/EBITDA ratio of below 1.0x;
Upgrade of SCC's standalone credit profile to 'A-'.
The Positive Rating Sensitivities for SCC are:
A sustained Net Debt/EBITDA ratio at SCC of below 1.0x;
No material changes to the tax and royalty scheme for miners in
More favorable environment for greenfield or brownfield copper projects in
Factors that could, individually or collectively, lead to negative rating action/downgrade:
If GFM's credit profile becomes weaker, the rating would be equalized to GMexico's under Fitch's methodology. A negative rating action on
A sustained consolidated Net Debt/EBITDA ratio of more than 2.0x;
A downgrade of SCC's standalone credit profile to 'BBB'.
The Negative Rating Sensitivities for SCC are:
A sustained Net Debt/EBITDA ratio at SCC of more than 2.0x;
A prolonged deterioration of SCC's low-cost production status and/or copper fundamentals;
A decline in the standalone credit profile of Transportes from 'BBB+' to 'BBB' could also result in a downgrade of GFM's FC IDR and LC IDR.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Liquidity: GMXT maintains strong liquidity with consolidated readily available cash of
The company does not have a dividend payout policy, providing a flexible approach to liquidity during volatile periods and in times of large investments. Fitch expects the company to manage its consolidated adjusted leverage profile below 2.0x with excess cash flow to be deployed for capex and dividends. Fitch would expect
Issuer Profile
Through GFM's subsidiary, Ferromex, GMXT owns the largest railway system in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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