S&P upgrades GCC rating
S&P Global Ratings has raised its long-term corporate rating on Grupo Cementos de Chihuahua to 'BB' from 'BB-'. The outlook is stable.
At the same time, S&P raised the issue-level rating on the $260m senior secured notes due 2020 to 'BB' from 'BB-'.
Following GCC's acquisition of various assets from Cemex in 4Q16 for approximately US$306m (consisting of one cement plant in Texas, two cement terminals located in Amarillo and El Paso, Texas and the concrete, aggregates, asphalt and building materials businesses in El Paso, Texas, and Las Cruces, New Mexico) in S&P's view, the company has "strengthened its competitive position across the central states of the US and the northern state of Mexico, Chihuahua."
The rating action reflects the rapid integration of these new assets within GCC's system, which increased the company's scale of operation, with a total installed cement capacity of 5.1Mta, and which will allow the company to supply the increasing demand in its markets of influence, the rating's agency highlights.
"In our view, the assets integration will further strengthen GCC's market position in the states where it operates and reinforce its barriers to entry against potential additional new players in those markets. We also believe that with these new assets, GCC will further consolidate its unique and strategic regional footprint and will take advantage of its extensive and sophisticated distribution network across the central states of the US and the northern state of Chihuahua, Mexico, allowing for economies of scale and timely product distribution to its clients. Moreover, we believe that the company will continue to capture considerable synergies from the vertical integration of its system, which in our view, will enable its EBITDA margin to remain above 25 per cent in the future," S&P said.
The updated base-case scenario considers that GCC will continue to benefit from the favourable cement market conditions in the US and Mexico, which allows S&P to maintain its guidance for mid-single digit volume growth and price increases in all of its segments, coupled with the integration of its new assets for the remainder of the year.
Moreover, S&P expects GCC to maintain its EBITDA margin above 25 per cent in the next few years and that the company will continue to keep its strict cost structure management. In addition, although S&P expect GCC to execute additional expansion capex in 2017, to capture increasing demand from South Dakota and some of adjacent markets, the company is likely to continue generating FOCF this year, and that capex should normalise starting in 2018.
