Fitch Ratings has downgraded the Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) of
Fitch has also downgraded
The downgrade reflects Fitch's view that Intercement is likely to enter in a debt restructuring process soon, while it completes additional asset sales. Within this period, the company's strategy to preserve cash could also accelerate a default-like process.
Fitch expects the restructuring process will fall within its definition of a default-like process, which would result in a downgrade to 'C'. InterCement's credit risks has been pressured by persistently high refinancing risks and limited refinancing alternatives despite improving operating cash flow generation and asset divestures. Excluding its operations in
Key Rating Drivers
Short-Term Debt Pressure: Fitch considers that a strategy to preserve cash is likely in the event of a potential debt restructuring process. Intercement's cash on hand as of
Challenge to Complete Refinancing: InterCement is working with creditors to extend borrowings that are due within the next nine months while continuing to discuss asset sales, mainly for its African subsidiaries, and assessing opportunities to execute refinancing of its outstanding 2024 bonds and local debentures. In a scenario of potential asset sale, Fitch estimates resources to be in the
High Leverage Excluding Argentina: InterCement faces currency control restrictions at its operations in
Excluding
Weak Economic Growth to Limit CFFO Expansion: The scenario of weak economic growth, high inflation and interest rates places additional pressure on InterCement's ability to boost its operating cash flow from operations (CFFO) in
Consolidated Approach: As per Fitch's Parent and Subsidiary Linkage Rating Criteria, Fitch equalizes the ratings for Intercement and Intercement Brasil. This mainly reflects effective control and ample access to strategic and financial decisions, cross guarantees, asset collaterals (
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Proactive steps by the company to materially bolster its capital structure, including asset sale, allowing a smooth refinancing of its capital market debt without material reduction in terms.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade may occur if, in Fitch's judgment, a default or default-like process has begun, which would be represented by a 'C' rating.
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
Limited Financial Flexibility: InterCement has high refinancing risks and its ability to continue to secure funding in the short term is uncertain. With the increasing interest rates in
Issuer Profile
InterCement is a large cement producer with 20 million tons of total consolidated cement sales and annual production capacity of 35 million tons. The company has a diversified portfolio of assets with operations 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
InterCement has an ESG Relevance Score of '4' for Governance Structure due to limited board independence through ownership by key shareholder
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.
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