CYDSA, S.A.B. de C.V. Assigned #BB/B# Global Scale Outlook Stable

Stocks and Financial Services Press Releases Tuesday September 19, 2017 09:05
MEXICO CITY--19 Sep--S&P Global Ratings

MEXICO CITY (S&P Global Ratings) Sept. 18, 2017--S&P Global Ratings said todaythat it had assigned its global scale 'BB' long-term and 'B' short-termcorporate credit ratings on CYDSA, S.A.B. de C.V. (CYDSA). The outlook isstable.

CYDSA has developed a strategic investment plan during the past few years,which includes the construction of two cogeneration plants, the redesign andrenovation of its evaporated salt complex in Coatzacoalcos, and theconstruction of a new chlorine and caustic soda plant. The company is also

expanding its business offerings by starting operations of its hydrocarbonunderground storage segment in 2017.

The abovementioned factors have helped CYDSA maintain its position as one ofthe leading producers of chemicals, petrochemicals, and salt in Mexico. Inparticular, it's engaged in producing refrigerant gases, caustic soda,chlorine, and edible and industrial salt. CYDSA's products serve a wide arrayof industries, as well as leading and recognized customers in their respectivemarkets, with more than 90% of its revenues generated in Mexico. The company'scompetitive advantage is further strengthened by its joint venture withHoneywell, which is a global leader in producing specialty refrigerant gases.In Mexico, CYDSA has the exclusive right to distribute Honeywell productsthrough its own logistic network. Honeywell's patents are not accessible toother players, and therefore, are an entry barrier in the market.

The company has developed a high degree of vertical integration through theconversion of salt into caustic soda, chlorine, and refrigerant gases.Furthermore, its operating processes have significant savings through itscogeneration plants. It also has the potential to sell--in the nearterm--surplus capacity to third parties. This has allowed CYDSA to achieveprofitability with margins that surpass most of its peers. We expect EBITDAmargins to be around 24% and 28% in 2017 and 2018, respectively. Theaforementioned margin levels also result from an investment plan started in2013.

We expect a weighted average FFO-to-debt ratio for the next three years ofabout 27%. This is a result of higher cash flow generation and lower capexrequirements, which strengthened the company's cash balance and resulted inlower net debt levels. Additionally, we expect CYDSA's EBITDA interest

coverage and FFO interest coverage ratios to remain well above 3.5x.

The stable outlook reflects our expectation that CYDSA will post a FFO-to-debtratio of around 17%, an EBITDA interest coverage ratio around 4.0x, and EBITDAmargins well above 20% over the next 12 months. We also believe that thecompany will continue implementing efficiency initiatives on its facilitiesand developing strategic processes, while maintaining its market position.

We could lower the ratings if additional leverage, coupled with deterioratingoperating performance, consistently weakens key credit metrics; such that FFOto debt falls below 20% and EBITDA interest coverage is below 3.0x on aconsistent basis. These metrics could result from large debt-financedstrategic projects, higher capex, a deterioration of cash flow generation froma weaker pricing environment, or from lower-than-expected revenue.

We could raise the ratings if the company consistently posts FFO to debt above30% and EBITDA interest coverage above 6.0x, which could result fromhigher-than-expected prices of chlorine and caustic soda, expandingoperations, and revenue increases from strategic projects.


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