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TEXT-Fitch affirms Celulosa Argentina's IDR at 'B'/'A(arg)'
May 30, 2012 / 4:42 PM / 5 years ago

TEXT-Fitch affirms Celulosa Argentina's IDR at 'B'/'A(arg)'

May 30 - Fitch Ratings has affirmed the following ratings on Celulosa
Argentina S.A. (Celulosa):	
	
--Foreign currency Issuer Default Rating (IDR) at 'B';	
--Local currency IDR at 'B';	
--National scale IDR at 'A(arg)'.	
	
The Rating Outlook is Stable.	
	
Celulosa's 'B' ratings reflect the company's market position as an integrated
pulp, paper and forest products manufacturer in Argentina and Uruguay. While
very small in size compared to its peers in the region, Celulosa has a strong
market share in its domestic markets, and has a diversified and stable customer
base. The company benefits from import tariffs and other agreements, such as a
bilateral trade agreement between the governments of Argentina and Brazil that
limits Brazilian paper imports and reduces competition in the domestic market.	
	
Celulosa's small size makes it more vulnerable to industry cycles due to lower
economies of scale and its operating results are exposed to high levels of
volatility in international pulp prices. The company is also exposed to
double-digit inflation in Argentina and other direct and in-direct sovereign
related risks, including devaluation and refinancing risks.	
	
Current market conditions prevent Celulosa from rolling out its growth strategy.
The company's strategy is to increasingly integrate its operations with the
forestry segment and reduce its reliance on third-party suppliers of raw
materials (eucalyptus wood). As part of this strategy, the company plans to
invest in the forestry division as well as develop new business lines. As of
today, 95% of wood purchases are done on a spot basis, exposing the company to
prices and volume risks. The company has production assets in Argentina and
Uruguay, the latter through its subsidiary Fanapel.	
	
Financial results came under pressure over the last year. For the last 12 months
(LTM) ended Feb. 29, 2012, Celulosa generated revenues and EBITDA of USD 391
million and USD58 million, respectively. These figures compared to USD 355
million of sales and USD 73 million of EBITDA as of Feb. 28, 2011. Although
Celulosa's sales reflected a price increase of 10%, EBITDA margins deteriorated
to levels which are expected to continue to impact the company's cash generation
over the near term. Celulosa generated USD14 million of CFO for the LTM as of
February 2012. The company used this cash flow and new debt issuances to finance
capex and preferred dividends.	
	
Leverage is low for the rating category. Celulosa's debt levels are currently
below targeted levels of USD 200 million, and leverage is expected to increase
to 3.6x from the current level of 3.0x assuming the company is able to access
the international capital markets to fund its capex plan. Given the negative
fundamentals of the industry and adverse financial conditions in the
international capital markets, Fitch does not expect the company will increase
its debt levels in the near term. As of Feb. 29, 2012, Celulosa had USD173
million of debt, an increase from USD156 million at FYE May 2011. Celulosa's
EBITDA is expected to remain at approximately USD60 million during FYE 2012.	
	
Celulosa's liquidity is tight and exposes the company to refinancing risk. As of
February 2012 Celulosa had USD3.7 million of cash and marketable securities and
USD85 million of short-term debt. Historically, the company has had a high
concentration of its financial debt in the short term and has consistently been
able to refinance these trade lines of credit.	
	
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.	
	
Applicable Criteria and Related Research:	
--'Corporate Rating Methodology' dated Aug. 12, 2011;	
--'Liquidity Considerations for Corporate Issues' dated June 12, 2007.	
	
Applicable Criteria and Related Research:	
Corporate Rating Methodology	
Liquidity Considerations for Corporate Issuers

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