Reuters logo
Fitch Assigns First-Time IDR of 'B-' to Three Techo S.A. Entities; Outlook Stable
November 30, 2017 / 8:44 PM / 13 days ago

Fitch Assigns First-Time IDR of 'B-' to Three Techo S.A. Entities; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, November 30 (Fitch) Fitch Ratings has assigned initial Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) of 'B-' to Techo S.A., Techo en el Urubo S.R.L. and El Pahuichi S.R.L. The Rating Outlook is Stable. These companies are organized under Bolivian laws, and each one of these companies has the same controlling shareholder, Julio Novillo Lafuente. Fitch refers to these three companies as Grupo Lafuente (GL) and analyzes them on a combined basis. The ratings factor in GL's business position, very intensive working capital requirements, high to moderate leverage, expected manageable liquidity and limited business/geographic diversification. KEY RATING DRIVERS Leading Land Developer in Bolivia: Fitch views GL's business position as strong based on its market positioning, scale, land reserves, and track-record. GL has over 22 years of experience and a footprint across the industry which has resulted in the completion of 20 residential real estate development projects, totalling over 12,000 hectares. The ratings factor in GL's market position as the largest land developer in Bolivia as measured by its combined total land size of projects developed, consisting of 20,759, 58,675, and 17,247 land lots during the first six months of 2017(1H17), 2016, and 2015, respectively. GL reported total revenues of BOL776.4 million (USD112 million) in 2016. GL's primary focus is on the residential real estate development in Santa Cruz de la Sierra, the largest city in Bolivia in terms of population. Business with High Working Capital Requirements: GL's sales of land lots are primarily oriented to the lower-income segment. The company needs to maintain high inventory levels, as each project cycle takes three to four years for the land development and commercialization. GL uses two types of sales models: (i) a fixed-term sales agreement with reservation of title, whereby customers finance their purchase through a plan of fixed monthly instalments, financed up to a five-year term (a fixed-term sales agreement), or (ii) a sales agreement with up-front payment in full. GL's operations are primarily carried out through the fixed-term sales agreement model, which represents approximately 79% of GL's total transactions per year. The land sales agreements are in USD, which partially mitigates GL's foreign exchange risk exposure. Deterioration in Customer Receivables Portfolio Negatively Incorporated: GL maintained a customer receivables portfolio of approximately BOL2.0 billion (USD280 million) as of Dec. 31, 2016. Fitch expects GL's portfolio value to average USD300 million during 2017-2018. This customer receivables portfolio has an average collection period of three years as of the end of 2016. Historically, GL's customer receivables portfolio saw an over-60-day average payment delay of 7%. Due to its aggressive business growth during 2016, GL's customer receivables portfolio over-60-day average payment delay increased to 13.7% during the first nine months of 2017. The ratings incorporate expectations for GL's over-60-day-late customer receivables portfolio to return to 10% by the end of 2017 and return to historical levels of 7% during 2018 -2019. Weak Liquidity Position and Negative Recent Cash Flow Generation: GL has historically maintained minimum levels of liquidity. The company had a cash position of BOL4 million (USD577 thousand) as of June 30, 2017, while its short-term debt was BOL119 million (USD17 million). Fitch expects GL to increase its liquidity position during 2018-2019 as a result of a combination of improved cash flow generation and incremental debt. GL's cash flow generation was negative in 2016 at BOL1.3 billion (USD182 million) as a result of a material increase in its working capital needs (for an increase in inventory levels). The increase in GL's working capital in 2016 was of BOL1.3 billion (USD187 million). Fitch expects GL to improve its cash flow generation during 2018-2019 on the back of targeting for slower business growth and limited future land acquisitions. High Gross Adjusted Leverage: GL maintains low gross financial leverage, which is expected to increase as a result of incremental debt during the next months. GL's 2016 gross adjusted leverage, measured as total debt to adjusted EBITDA, was 1.5x. GL reached a total adjusted EBITDA level of BOL401 million (USD58 million), while total debt was BOL603 million (USD86 million). GL's total debt consists entirely of unsecured loans with local banks. Fitch expects GL's gross adjusted leverage to reach 5.8x by the end of 2017 and to be in the 4x-3x range during 2018-2019. GL's annual revenues and adjusted EBITDA margins are anticipated to average BOL740 million (USD106 million) and 35%, respectively, during 2017-2019. Positively factored in the ratings is the company's residual value in available inventory, land reserves and customer receivables portfolio, which are expected to be of BOL1.3 billion (USD186 million), BOL1.4 billion (USD205 million); and BOL2 billion (USD293 million) by Dec. 31, 2017. Fitch estimates GL's total loan to value at 30% by Dec. 31, 2017. DERIVATION SUMMARY GL's ratings reflect an experienced and well-positioned land developer in the Bolivian industry with high working capital requirements, important market position in the local market and relatively smaller scale when compared to regional/global players. Fitch's portfolio of rated issuers in Latin America in the single B rating category reached the following average credit metrics during 2014-2016: (1) interest coverage 2.8x, (2) total gross leverage 5.2x, (3) FCF margin -2.7%; EBITDA margin +23.9%; and, capital intensity (capex/LTM revenues ratio) 9.6%. GL's ratings are well positioned in the 'B' rating category relative to regional peers in terms of profitability and gross leverage. GL's recent track record does not fit well in the 'B' rating category relative to regional peers in terms of liquidity and capacity to generate positive FCF, while the company maintains a weaker position in terms of scale. GL's gross adjusted leverage is expected to increase during 2017-2019 and the sustainability of its capital structure is viewed as dependent on GL's capacity to reach neutral to positive FCF and/or receive continued equity injections during 2017-2019. The Stable Outlook reflects Fitch expectations that GL will generate positive FCF and materially improve its liquidity while keeping its adjusted gross leverage at 3x-4x during 2018-2019. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Revenue growth rates of approximately -15%, 8.2%, and 17%, respectively, during 2018-2019 - EBITDA margin of around 35% during 2017-2019 - Negative FCF generation in 2017 and positive in 2018-2019 - Gross adjusted leverage, measured as total debt to adjusted EBITDA, in the 3x-4x range during 2018-2019 - Interest coverage ratio around 3x during 2017-2019 - Cash position consistently above BOL100 million during 2018-2019 RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action --Fitch could consider a positive rating action if GL generates operational and FCF margins consistently above those levels incorporated in the ratings, resulting in material liquidity improvement and lower gross adjusted financial leverage. --Adjusted gross financial leverage, measured as total debt/adjusted EBITDA, consistently below 3x. --Interest coverage consistently above 4x. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action --Fitch could consider a negative rating action if GL continues to generate negative FCF margins in 2018, resulting in material liquidity deterioration and higher than expected gross adjusted financial leverage. --Adjusted gross financial leverage, measured as total debt/adjusted EBITDA, consistently above 5x. --Interest coverage consistently below 2x. LIQUIDITY Fitch views GL's liquidity as very sensitive to its capacity to maintain neutral to positive FCF generation during 2018-2019. GL has historically maintained minimum levels of liquidity. Fitch expects GL to increase its liquidity position during 2018-2019 as a result of a combination of improved cash flow generation and incremental debt and we estimate GL's interest coverage ratio at around 3x during 2017-2019. Fitch expects GL's cash flow generation to trend neutral to positive during 2018-2019, as GL does not plan to increase its current levels of available inventory. As of June 30, 2017, GL maintained t4,543 lots in available inventory, which are expected to cover the company's sales levels during 2017-2020 period. FULL LIST OF RATING ACTIONS Techo S.A. (Techo) - Long-Term Foreign Currency Issuer Default Rating (IDR) 'B-' - Long-Term Local Currency IDR 'B-' Techo en el Urubo S.R.L. -Long-Term Foreign Currency Issuer Default Rating (IDR) 'B-' -Long-Term Local Currency IDR 'B-' El Pahuichi S.R.L. -Long-Term Foreign Currency Issuer Default Rating (IDR) 'B-' -Long-Term Local Currency IDR 'B-' The Rating Outlook is Stable. Contact: Primary Analyst Jose Vertiz Director +1-212-908-0641 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Tatiana Sclabos Analyst +56 2 24993322 Committee Chairperson Joseph Bormann, CFA Managing Director +1-312-368-3349 Date of Relevant Rating Committee: Oct. 30, 2017. Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Country-Specific Treatment of Recovery Ratings (pub. 18 Oct 2016) here Non-Financial Corporates Notching and Recovery Ratings Criteria (pub. 16 Jun 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below