Bangkok--2 Apr--Standard & Poor's
SAO PAULO (Standard & Poor's) April 1, 2015--Standard & Poor's Rating Services lowered its global scale corporate credit and debt ratings on Camargo Correa S.A. (CCSA) and InterCement do Brasil S.A. (InterCement) to 'BB-' from 'BB'. At the same time, we lowered our national scale ratings on Camargo's senior unsecured debt and the national scale corporate credit rating on InterCement to 'brA-' from 'brAA-'. The outlooks on both global and national scale ratings remain negative. T
he downgrade is based on our expectation of the group's weaker cash flow generation and more leveraged balance sheet in 2015 and 2016. This will result from Brazil's weak economy, which will pressure the company's cement and the engineering and construction (E&C) units, and from real's devaluation, because about 12% of CCSA's consolidated debt is dollar denominated while its cash flow generation is pegged mainly to reals and other emerging-market currencies.
Our ratings on InterCement mirror the ratings on its parent company, CCSA, because we consider both entities as a single economic group bearing the same default risk. Despite InterCement's 'bb' stand-alone credit profile (SACP), CCSA's credit profile caps the rating on the subsidiary since we do not see Intercement sufficiently ring-fenced from its group. CCSA owns InterCement, which, in turn, controls the group's major industrial activity, the cement division. We consider InterCement as a core subsidiary of CCSA. As the subsidiary's scale increases, its financial performance and funding prospects become more independent from those of the group than in the past. Also, InterCement's outstanding bond currently has some covenants that could prevail the company to upstream a significant share of its resources to CCSA. Although we currently don't view a delinked relationship between the two companies, InterCement's performance could suffer if it were to mitigate parent's financial and operating woes. Our analysis is also currently based on the assumption that InterCement will remain the main cash generator for CCSA and that the later should continue to exercise control over InterCement's main financial policies.
Our ratings on CCSA incorporate a positive assessment of the quality of its capital structure, which increased our anchor by one notch to reflect the quality and liquid investments of the company's concessions unit. In our view, CCR S.A.'s and CPFL Energia S.A. represent significant equity investments , which the company can monetize, if needed. Such action would bolster our assessment of the company's financial risk profile. InterCement's 'bb' SACP is based on its "satisfactory" business risk profile and "aggressive" financial risk profile because the subsidiary's leverage ratios and liquidity are stronger than those of CCSA.