Grupo Mexico Outlook Revised To Positive On Improved Business Prospects And Stronger Credit Metrics, Ratings Affirmed

Stocks and Financial Services Press Releases Friday November 17, 2017 09:07
MEXICO CITY--17 Nov--S&P Global Ratings
  • GMexico Transportes (GMXT), the transportation subsidiary of Mexican mining company, Grupo Mexico, raised MXN9.5 billion (about $497 million) after successfully launching its IPO on Nov. 10, 2017.
  • Grupo Mexico used the net proceeds of the IPO to prepay a portion of a $1.55 billion bridge loan that it took out to partly finance the acquisition of Florida East Coast Railway (FECR). This debt repayment resulted in stronger credit metrics than in our base-case scenario for the company.
  • In our opinion, the positive trend in Grupo Mexico's financial risk profile, coupled with favorable business prospects related to the expansion of its transportation division and a robust pipeline of mining projects, could enhance the company's credit profile in the near term.
  • Therefore, we're revising our outlook on Grupo Mexico to positive from stable affirming our 'BBB' ratings on the company and all of its mining subsidiaries, as well as the 'BBB' issue-level ratings on their senior unsecured notes.
  • The positive outlook reflects a one-in-three chance of an upgrade if the expansion of the transportation division increases its contribution to consolidated EBITDA, thus reducing commodity concentration risk, while a timely execution of the pipeline of projects increases the company's asset base.

MEXICO CITY (S&P Global Ratings) Nov. 16, 2017--S&P Global Ratings revised its outlook on Mexico-based mining, transport, and infrastructure company, Grupo Mexico S.A.B. de C.V., to positive from stable. At the same time, we affirmed our 'BBB' corporate credit rating on the company.

We also affirmed our 'BBB' corporate credit ratings on Americas Mining Corp., Southern Copper Corp., and Minera Mexico S.A. de C.V. because we continue to believe these companies are core to the overall group's operations. The outlook on these companies remains stable. We also affirmed our 'BBB' issue-level ratings on all senior unsecured notes of Southern Copper and Minera Mexico.

Grupo Mexico recently acquired FECR through its transportation division, which will result not only in double-digit growth at GMXT, but more importantly, in the rise in its EBITDA contribution to around 25%. In addition, Grupo Mexico's use of proceeds from GMXT's recent IPO to repay debt has improved the company's credit metrics relative to our previous base-case scenario. The gradual diversification of Grupo Mexico's portfolio mitigates to a certain degree commodity concentration risk. This, coupled with our expectations that the pipeline of mining projects will expand the company's asset base and with the commitment to low leverage, indicates that Grupo Mexico is on track to improve its overall credit profile.

GMXT represents around 21% of the group's total revenue as of the third quarter of 2017. However, we expect this metric to rise to about 25% in the next two years because of FECR's consolidation. In our opinion, the FECR acquisition complements and strengthens GMXT's operations in the U.S. FECR is a regional railway company that operates 351 miles of main railroads between Jacksonville and Miami. It's the only railway freight company serving Florida's east coast and has exclusive access to the state's two largest harbors.

We expect the ecompletion of the mining projects will reduce Grupo Mexico's historical dependence on the Buenavista mining complex, currently representing 44% of total copper output. In particular, we consider that Toquepala's expansion, the start of operations of the Peruvian copper project Tía María, and several brownfield projects would broaden the company's copper production platform.

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