Fitch Ratings has affirmed the following ratings of Alfa, S.A.B. de C.V.
(Alfa):
--Long-term foreign currency Issuer Default Rating (IDR) at
'BBB-';
--Long-term local currency IDR at 'BBB-';
--Senior
notes USD500 million due 2024 at 'BBB-';
--Senior notes USD500
million due 2044 at 'BBB-'.
The Rating Outlook is Stable.
Alfa's ratings reflect its diversified business portfolio, strong market
position in the industries it participates, solid consolidated cash flow
generation and sound financial position. The ratings also incorporate
the credit quality of its main subsidiaries, debt allocation between
holding and operating companies, the expected flow of dividends to the
holding, as well as the liquidity position at the holding. Alfa's credit
quality are limited by the cyclicality of its operations in the
petrochemical, automotive, and oil and gas industries, and its exposure
to the volatility of its main raw materials through its business
portfolio.
KEY RATING DRIVERS
Solid Business Profile:
Alfa's credit quality benefit from the solid business profiles of its
subsidiaries as well as from being one of the largest conglomerate
groups in Mexico. Its main companies Alpek, S.A.B. de C.V. (Alpek;
'BBB-'/Outlook Stable), Nemak, S.A.B. de C.V. (Nemak; 'BB+'/Outlook
Stable), Sigma Alimentos, S.A. de C.V. (Sigma; 'BBB'/Outlook Stable),
and its recent merger between Alestra, S. de R.L. de C.V. (Alestra) and
Axtel, S.A.B. de C.V. (Axtel; 'BB-'/Outlook Stable), have leading or
important positions in the industries where they participate and stable
capital structures, which support the credit profile of the holding
company in the long term.
Diversified Business Portfolio:
Fitch considers that Alfa's diversified portfolio across different
industries mitigates its business risks and cash flows generation. The
company's business exposure to more volatile petrochemical, automotive,
and oil and gas industries are mitigated by the relatively more stable
business profiles related to processed foods, and IT and telecom. Also,
petrochemical and automotive business cycles have historically
counterbalanced each other through the cycles, stabilizing Alfa's
consolidated cash flow. Fitch views as well that additional flexibility
comes from its geographical and currency diversification with operations
in 26 countries and around 66% of consolidated revenues from
subsidiaries outside Mexico.
Acquisition Strategy:
Fitch anticipates that Alfa will continue evaluating investments or
acquisitions to strengthen its business portfolio. While investment in
the energy sector are expected to be delayed due to the current industry
conditions, Fitch contemplates in its ratings that any significant
transactions related to this sector at the holding level would be
supported mainly with the potential proceeds of an IPO's from its
subsidiary Sigma, as current net leverage is in the upper range of its
long-term target. The merger of Alestra and Axtel that was concluded in
February 2016 is not expected to have a material impact in the credit
quality of Alfa.
Stable Net Leverage:
Fitch's forecast for 2016-2017 Alfa's total debt to EBITDA on a
consolidated basis to be around 2.8x and the net debt to EBITDA to be
2.3x. These leverage metrics include the effect of the merger between
Axtel and Alestra. The company's ratings reflect the company's growth
strategy and its financial policy to maintain a consolidated net debt to
EBITDA between 1.5x to 2.5x. As of Dec. 31, 2015, Alfa's total debt to
EBITDA and net debt to EBITDA calculated by Fitch were approximately
3.1x and 2.4x, respectively. The company's total debt was MXN106.9
billion (USD6.2 billion) at year ended 2015.
Steady Dividend Inflow:
Fitch incorporates into the ratings that Alfa at the holding level will
be receiving approximately USD330 million of annual dividends from its
operating subsidiaries in 2016. These levels of dividends combined with
its cash position should be sufficient to cover its debt service,
corporate expenses, taxes and dividend payments to Alfa's shareholders.
In 2015, the holding received around USD245 million of dividends from
its subsidiaries and USD569 million from Nemak's IPO.
Structural Subordination:
Fitch views that Alfa's subordination of debt at the holding level is
mitigated by its liquidity position, flow of dividends relative to its
debt service, and the credit profiles of its main subsidiaries. While
the recent IPO of Nemak and the merger between Alestra and Axtel have
decreased its equity ownership in these subsidiaries, Fitch continues to
view the company has sufficient control in defining their business
strategies and financial policies.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case include:
--Revenue
increase in high single digits in MXN terms in 2016-2017;
--EBITDA
margin to remain at around 13%-14% in 2016-2017;
--Consolidated
total debt to EBITDA at 2.8x and the net debt to EBITDA at 2.3x in
2016-2017;
--Annual flow of dividends to the holding higher than
USD300 million in 2016-2017.
RATING SENSITIVITIES
Factors that could lead to negative rating actions include:
--A
change in the company's financial strategy towards additional debt at
the holding level to finance investment in the energy sector in Mexico;
--A
simultaneous deterioration in the operating performance of Alpek and
Nemak;
--Sustained deterioration in the flow of dividends from its
operating subsidiaries due to adverse market conditions or debt funded
acquisitions;
--Sustained net debt to EBTIDA higher than its
long-term target of 2.5x;
--A downgrade in the ratings of its
operating subsidiaries could also pressure Alfa's ratings.
Considering the structural subordination of the debt at the holding
company level and existing ratings of the subsidiaries, a positive
rating action is not foreseen in the medium term. However, factors that
could lead to positive rating actions include:
--Stronger liquidity
position at the holding company and higher consolidated free cash flow
(FCF) generation through the business cycle;
--A significant
improvement in its capital structure associated to debt reduction;
--Upgrades
in the credit quality of its operating subsidiaries.
LIQUIDITY
Strong Liquidity:
Fitch considers that Alfa's liquidity position is strong in relation to
its short-term debt maturities. As of Dec. 31, 2015, the company's
consolidated cash balance was MXN24.8 billion (USD1.4 billion) with
short-term debt maturities of MXN4.5 billion (USD262 million). At the
holding level Alfa had cash balances of USD301 million, available
committed and non-committed credit facilities of USD175 million and
USD350 million, respectively, and no material short-term debt. Fitch
views that the company's good access to capital markets and credit
facilities provide additional financial flexibility.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including
Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
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Solicitation
Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000923
Endorsement
Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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