Feb 2017 Financial News

Fitch upgrades TCL

Feb 01, 2017

Fitch Ratings has upgraded Trinidad Cement Limited’s (TCL) local and foreign currency Issuer Default Ratings (IDRs) to B+ from B-. The ratings upgrade reflects Cemex’s increased ownership of TCL to at least 70 per cent.

Fitch said although there are no legal guarantees or cross-default provisions on the company’s debt obligations, it is of the view that a tighter relationship with Cemex should improve TCL’s market position and financing options.

The ratings, which are one notch below Cemex’s, reflect, according to Fitch, the volatility of TCL’s cash flow due to its limited geographic presence. It explained that TCL has relatively small operations with total capacity across its three cement operating facilities of 2.4 million tonnes.

Fitch said it also factored into the ratings the low gross leverage of about 2.0x due to the company’s strong financial performance during 2015 and 2016, which has allowed it to meet its debt obligations and reduce its debt.

Key ratings drivers

Cemex recently announced that its takeover bid to all shareholders of TCL to acquire up to 132.6 million ordinary shares in TCL had been declared unconditional.

This brings Cemex’s ownership stake in TCL to at least 70 per cent. Fitch said this could increase marginally as Cemex offer to purchase TCL shares will remain open until February 7, 2017.

Cemex had increased its ownership in TCL from 20 per cent to 39.5 per cent through a rights offering during 2015. Fitch said the proceeds from these offerings strengthened TCL’s financial position.

Both companies also signed a technical and managerial services agreement which provided TCL with management, technical assistance along with additional distribution and logistical support.

Fitch explained that a key driver in the rating was the fact that TCL had defaulted on its loans twice in the last five years.

It explained that the company took numerous steps following the 2014 default, including hiring a new management team, negotiating an equity rights offering with trade unions and refinancing its debt.

Fitch is projecting that TCL should be able to manage its capital structure going forward and significantly improve its credit profile, given scheduled amortizations as well as increased profitability resulting from cost reduction initiatives.

TCL’s debt as of September 30 2016 was US$160 million.

TCL is a major producer of cement in the Caribbean with eight operating companies in Trinidad, Barbados, Guyana, Jamaica and Anguilla.

The company has a dominant market position in the Caribbean Community (CARICOM) region particularly in key markets such as Trinidad and Tobago and Jamaica.

A majority of the demand for shipments of cement to small Caribbean islands is for smaller quantities, which makes it a less attractive market to many of the larger cement players not already established in the Caribbean.

TCL’s cement plants in the region translate into cost advantages that are difficult for smaller competitors to replicate.

ASSUMPTIONS

Fitch’s assumptions for 2017-2018 are:

• Low single-digit total cement volumes sales growth;

• Earnings before interest, tax, depreciation and amortization EBITDA margins remain above 21%;

• Dividends of around USD3 million per year;

• Positive Free Cash Flow (FCF) generation is used to service debt

 

Source:
Rosemarie Sant
Trinidad Guardian
Wednesday February 1, 2017

http://www.guardian.co.tt/business/2017-02-01/fitch-upgrades-tcl