LOMA NEGRA COMPAÑÍA INDUSTRIAL ARGENTINA SOCIEDAD ANÓNIMA
Fitch Ratings has downgraded
Fitch has also downgraded
The downgrade reflects InterCement's persistently high refinancing risks and limited refinancing alternatives despite improving operating cash flow generation and asset divestures. Excluding its operations in
Key Rating Drivers
Challenge to Complete Refinancing: InterCement is working with creditors to extend borrowings that are due within the next 12 months and is expected to be discussing new loans and asset sales, mainly for its African subsidiaries, while actively assessing opportunities to execute refinancing of its outstanding 2024 bonds and local debentures. The company has already announced the sale of its assets in
As of
High Leverage Excluding Argentina: InterCement faces currency control restrictions at its operations in
On a proportional basis, excluding the 49% of
Inflationary Pressures: The scenario of soaring oil prices and overall energy costs challenged InterCement's EBITDA generation during 2022, and its ability to partially pass costs through to prices was key. Like the whole cement industry, the company faced profitability deterioration with 2022 and 2023 adjusted EBITDA margin forecasted at around 23%-25%. This represents a deterioration from the 27.4% and 24.3% of 2021 and 2020, respectively. InterCement's operating margin is one of the highest among its Latin American peers. For 2022, Fitch expects consolidated adjusted EBITDA of around
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 generation from
Solid Business in Emerging Markets: InterCement is a leading cement producer in
Increasing Local Debt Reduces FX Exposure: Foreign exchange mismatch has been reduced after several local issuances in most of the countries where InterCement operates. As of
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 (
Derivation Summary
InterCement's 'CCC' rating reflects substantial credit risk due to weak cash flows relative to a large debt burden. Meaningful debt repayment through cash flow is limited and debt refinancing would likely result in substantially higher interest rates than that of existing debt. The company has a strong business position in most of its markets and relatively large scale, particularly in
Despite its scale, InterCement's cash flow varies greatly as it operates in highly volatile markets such as
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Brazilian volumes stable in 2022 and low-single digits in 2023;
Argentine volumes low-single digits in 2022 and 2023;
Capex levels around
Dividends to minorities and preferred shareholders of around
KEY RECOVERY RATING ASSUMPTIONS
Going-Concern (GC) Approach
The GC EBITDA estimate reflects Fitch's view of a sustainable post-reorganization EBITDA, excluding
An EV/EBITDA multiple of 5.0x is used to calculate a post-reorganization valuation and reflects a mid-cycle multiple.
Fitch applies a waterfall analysis to the post-default enterprise value based on the relative claims of the debt in the capital structure. Fitch's debt waterfall assumptions take into account the company's total debt at
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Successful refinancing of capital market debt bonds;
Additional proactive steps by the company to materially bolster its capital structure, including asset sale, allowing a smooth refinancing of its 2024 bonds without material reduction in terms for its bondholders.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Lack of progress in refinancing the 2024 notes during 2023;
Further deterioration of InterCement' liquidity position;
EBITDA Interest coverage below 1,0x
A downgrade may occur if, in Fitch's judgment, a default appears probable or if a default or default-like process has begun, which would be represented by a 'CC' or '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. With the increasing interest rates in
As of
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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