Fitch assigns 'BB' rating to Masisa's issuance of US$300M senior unsecured 9.5% notes due 2019; rating incorporates sound business position, impact of sale of plantations in Chile to Hancock Natural Resource Group on forestry assets in South America
April 29, 2014
– Fitch Ratings publishes a rating of 'BB' for the USD300 million senior unsecured 9.5% notes due 2019 issued by Masisa S.A. (Masisa). The notes are unconditionally guaranteed by Forestal Tornagaleones and Masisa Forestal. Proceeds from the notes will primarily be used to refinance Masisa's medium- and short-term debt.
KEY RATING DRIVERS
HIGH EXPOSURE TO ARGENTINA AND VENEZUELA
Masisa's ratings are constrained by the company's large exposure to Venezuela and Argentina. Combined these markets represented 55% of Masisa's consolidated EBITDA as of Dec. 31, 2013. Challenges in these markets include non-stable currencies, political interference as well as foreign currency transfer restrictions. Masisa's net leverage of 3.0x as of Dec. 31, 2013 is below the 3.4x the company averaged during the past five years. Excluding the EBITDA from these markets, the company's net leverage ratio is around 6.8x.
SOUND BUSINESS POSITION
The ratings of Masisa incorporate its sound business position within Latin America as a leading producer of wood boards with 3.4 million cubic meters of installed capacity. The company's operations are concentrated in Chile, Brazil, Argentina, Venezuela, and Mexico. Masisa has Placentro retail stores and commercial offices in Peru, Colombia and Ecuador, and exports to countries outside the region such as the U.S. An additional credit consideration is the company's continued uses of equity to partially fund growth. Increases of equity occurred in 2003, 2005, 2009 and 2013.
FORESTRY ASSETS ARE IMPORTANT CREDIT CONSIDERATION
The ratings further incorporate Masisa's ownership of 226,433 hectares of plantations in South America, which along with its forestry land, had an accounting value of USD912 million as of Dec. 31, 2013. During March 2014, the company reached an agreement to sell 32,500 hectares of plantations in Chile to Hancock Natural Resource Group ('Hancock') for USD204 million. To implement the transaction, Masisa will provide these forestry assets to a New Co., based in Chile and Hancock will subscribe to 80% of the New Co's. shares, with Masisa holding the remaining 20%. Masisa and Hancock will subsequently enter a long term fiber supply agreement, which gives Masisa the option to purchase wood fiber. During 2013 Masisa supplied 3% of its Chilean industrial fiber needs from these forests. This sale (on a pro forma basis) reduces the company's 2013 net leverage ratios to 2.2x and 4.9x (excluding Venezuela and Argentina).
EBITDA GROWTH DURING 2013, DESPITE DEVALUATION IN VENEZUELA
Masisa generated an EBITDA of USD241 million during 2013, an increase from USD224 million during 2012 mainly driven by improved performance in Brazil, Chile and Mexico. The company's performance in Argentina has remained weak to relative potential, while its EBITDA in Venezuela increased to USD76 million from USD70 million during 2012, despite the company`s decision to present its 2013 financial statements with the 160% devaluation of the bolivar against the dollar during January 2014. Masisa's Brazilian operations benefited from lower energy costs, which offset a 2.7% volume decrease due to a fire at the Montenegro MDP plant during September 2012. Its Chilean operations benefited from a turnaround in the U.S. housing market, which increased demand for MDF moldings (+76%). During 2013 Masisa repatriated USD38 million of dividends from its Argentinean subsidiary.
MODEST INCREASE IN NET DEBT
Masisa had USD866 million of consolidated debt and USD137 million of cash and marketable securities as of Dec. 31, 2013, resulting in USD729 million of net debt. This figure compares with USD724 million as of Dec. 31, 2012. As of Dec. 31, 2013, USD643 million, or 74% of Masisa's consolidated debt is long term. This debt consists of USD373 million of bonds, USD262 million of bank debt and USD1.5 million of financing leases. About USD50 million of the company's cash is trapped in Venezuela, which increases its affective net leverage to USD780 million prior to the receipt of USD204 million from the forestry asset sale to Hancock.
MANAGEABLE LIQUIDITY PROFILE
During December 2013 Masisa refinanced part of its debt with a USD150 million 18-months bridge loan. This bridge is expected to be taken out with some of the proceeds of the USD300 million international 9.5% senior unsecured notes. The sale of non-strategic forestry assets should further bolster the company's liquidity. Masisa's Board of Directors approved a USD100 million capital increase, of which Masisa placed USD80 million during the pre-emptive right period. As of Dec. 31, 2013, Masisa had USD222 million of short-term debt.
SIGNIFICANT CAPEX PROGRAM
Masisa's capex program has been oriented toward strengthening its Mexican operations due to the strong growth potential of the market, as per-capita consumption of boards is low and the housing deficit is high. Between 2013 and 2015, Masisa plans to invest USD600 million. Key investments include the acquisition of Rexcel and Arclin's assets (concluded), which increased coating capacity in Chile and Brazil, and constructing a new MDF plant in Mexico with 200,000 cubic meter annual capacity. This mill includes a 100,000 cubic meter melamine facility. Financing for these investments should be through the USD100 million capital increase, USD300 million of cash flow from operations (Ex-Venezuela), and USD204 million of proceeds from the divestiture of non-strategic forestry assets.
Negative rating actions could occur if there is a sustained net debt increase, operating cash flow weakens, or the political environment in Argentina or Venezuela deteriorates further. Absent significant debt reduction, positive rating actions are not likely in the short term due to Masisa's reliance upon Venezuela and Argentina for around 50% of its EBITDA.
Fitch currently rates Masisa as follows:
--Foreign and local currency Issuer Default Ratings 'BB';
--National scale rating of Bond Line No. 355, No. 356, No. 439, No. 440, No. 560, No. 724 and No. 725 'A-(cl)';
--Short-term rating 'F1(cl)';
--Long-term national scale rating 'A- (cl)'.
--Equity rating 'Primera Clase Nivel 3(cl)'
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (July 8, 2013)'.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Jay Djemal, +1-312-368-3349
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Monica Coeymans, +56-2-499-3314
Joe Bormann, CFA, +1-312-368-3349
Elizabeth Fogerty, New York, +1 212-908-0526
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