Fitch: Coazucar's Free Cash Flow to Remain Negative
OREANDA-NEWS. The Negative Rating Outlook for Corporacion Azucarera del Peru S.A. (Coazucar) continues to reflect the company's high cash burn amidst low sugar prices, according to Fitch Ratings.
Coazucar and Gloria S.A., a sister company, acquired 15,600 hectares of land in Olmos for USD200 million in 2012. The company expects to annually produce between 120,000 metric tons (MT) and 130,000 MT of brown sugar from Olmos beginning in the second half of 2016. This production will increase the company's output from 770,000 MT in 2014 to 900,000 MT by 2017 and should result in the company's free cash flow turning positive.
Shareholder support continues to be reflected in the company's 'BB' ratings. This was evidenced during 2014 when Grupo Gloria injected USD30 million of cash into the company. Fitch anticipates further equity support should its liquidity position continue to deteriorate. As of June 2015, the company had PEN 210 million of cash and marketable securities and PEN 161 million of short-term debt.
Coazucar's total debt of USD467 million as of June 30, 2015 was mainly related to its USD325 million unsecured notes due during 2022. To address foreign exchange risk, Coazucar is currently buying back around 25% (USD82 million) of its bond after launching a tender offer to purchase up to USD165 million with the aim to reduce its U.S. currency exposure. The buyback is being financed with bank debt in local currency.
During the LTM ended June 2015, Coazucar generated PEN 314 million of EBITDA. By 2016, Fitch believes this figure will increase to PEN 326 million. Key assumptions are an increase in sales of sugar to 840,000 MT from 740,000 MT during 2014 and sugar prices of USD 16 cents/pound.
Fitch currently rates Corporacion Azucarera del Peru S.A. (Coazucar) as follows:
--Long-term foreign currency Issuer Default Rating (IDR) 'BB';
--Long-term local currency IDR 'BB';
--Senior unsecured notes 'BB'.
The Rating Outlook is Negative.