Fitch Ratings has affirmed the ratings of Cresud S.A.C.I.F. y A. (Cresud) as follows:
–Foreign Currency Issuer Default Rating (IDR) at ‘B-‘; Outlook Negative;
–Local Currency Issuer Default Rating (IDR) at ‘B-‘; Outlook Negative;
–USD60 million senior unsecured bullet notes due in 2014 at ‘B-/RR4’;
–National Scale at ‘AA-(arg)’; Outlook Stable
–National Scale Senior Unsecured Notes at ‘AA-(arg)’;
–Equity Rating at Category 1.
Cresud’s foreign currency (FC) IDR is constrained at ‘B-‘ due to the ‘B-‘ country ceiling of Argentina. Cresud’s ‘B-‘ local currency (LC) IDR is constrained by above-average risks associated with operating in the real estate segment in Argentina and the volatile cash flow of its agribusiness division, which is subject to weather conditions and commodity prices.
The Negative Rating Outlooks that have been assigned to the FC and LC IDRs are in line with those assigned to Argentina’s sovereign ratings and reflect the high degree of uncertainty about the business climate and economic conditions that should persist throughout 2013.
Cresud’s ratings consider its position as a leading company in the real estate and agribusiness sectors in Argentina. Cresud owns 64.5% of IRSA (‘B+’ local currency IDR by Fitch), a leading real estate company in Argentina dedicated to real estate development, office rentals, and shopping mall operations through Alto Palermo (APSA), which is 94.9% owned subsidiary of IRSA Inversiones y Representaciones S.A. (IRSA).
During the fiscal year ended June 30, 2012, IRSA accounted for all of Cresud’s consolidated EBITDA and 66% of its consolidated assets. Cresud has an important portfolio of farms in Argentina and also has a presence in Bolivia, Paraguay, and in Brazil through its 39.64% stake in BrasilAgro. The results from the agribusiness segment were negatively affected during the fiscal year ended June 30, 2012 due to poor weather conditions in Argentina.
Fitch links the ratings of Cresud and IRSA. Cresud’s ‘B-‘ local currency IDR is notched down from IRSA’s ‘B+’ LC IDR because of the structural subordination of its debt and its weaker stand-alone financial profile. This linkage reflects factors such as strong strategic and operational ties and the fact that IRSA’s upstream dividends represent a significant part of Cresud’s cash flow from operations. The dividend flow to Cresud from IRSA is expected to be relatively stable. During 2012, Cresud received dividends of USD14 million in June from IRSA and USD24 million in November.
The ratings also reflect moderate consolidated leverage, as well as manageable liquidity, as a result of unencumbered assets and land that could be sold. Regarding the real estate industry, the emphasis of Fitch’s methodology is on portfolio quality, diversity, and the size of the asset base. Cresud’s consolidated portfolio of real estate assets is strong with USD 1.2 billion of book value as of Sept. 30, 2012. This value would be higher at market values. These assets are mostly unencumbered and provide Cresud and its direct and indirect subsidiaries with a degree of financial flexibility.
On a consolidated basis, Cresud had USD641 million of sales and generated USD208 million of EBITDA during the fiscal year ended June 30, 2012. These figures compare with USD 858 million of consolidated debt, resulting in a net debt-to-EBITDA ratio of 3.6x and an EBITDA-to-interest expense ratio of 2.3x. Long-term debt accounts for 71% of total debt and includes USD420 million of senior notes at APSA and IRSA that mature between 2017 and 2020.
Consolidated EBITDA consists of USD160 million from the shopping mall segment developed by APSA and USD50 million from IRSA (including office rentals, developments, and hotels). The weak performance of the agribusiness segment resulted in a negative EBITDA of USD3 million. These results were mainly in the crop segment and are explained by an important drought during the 2011 – 2012 season and losses from holdings and derivatives in BrasilAgro that carried out its hedging transactions. Fitch expects an improvement in the profitability of the agribusiness segment for the current period.
The company’s stand-alone debt reached USD239 million as of Sept. 30, 2012. Short-term debt accounted for 31% of Cresud’s stand-alone total debt. During 2012, the company extended the average life of its debt through the issuance of approximately USD 115 million of senior unsecured notes in the local markets with maturities between 18 and 36 months. Cresud’s debt is supported by its asset portfolio. Its main assets include participations in IRSA and BrasilAgro, its portfolio of farms, and its inventory of crops and livestock. A significant portion of Cresud’s assets could be sold in traded markets, providing Cresud with additional liquidity to support its short-term debt obligations.
POTENTIAL RATING AND OUTLOOK DRIVERS:
Fitch expects that Cresud will manage its balance sheet to a consolidated net debt-to-EBITDA ratio of around 4.0x. Any significant increase in Cresud’s leverage ratio would weaken credit quality and could result in a negative rating action. Cresud’s ratings could be affected by an upgrade or downgrade of the Argentine country ceiling of ‘B-‘.
Applicable Criteria and Related Research:
–‘Corporate Rating Methodology’ (Aug. 8, 2012);
–‘Parent and Subsidiary Rating Linkage (Fitch’s Approach to Rating Entities within a Corporate Group Structure)’ (Aug. 10, 2012);
–‘IRSA Rating Action Commentary’ (Jan. 9, 2013);
–‘Alto Palermo S.A. Rating Action Commentary’ (Jan. 9, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage