Bangkok--6 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed the 'AAA(tha)' National Long-term rating of Cargill Incorporated's (Cargill) THB3.5bn senior unsecured debentures due in 2011. The Outlook is Stable. The agency also has an 'A' Long-term foreign currency Issuer Default Rating (IDR) with a Stable Outlook and a 'F1' Short-term foreign currency IDR on Cargill.
Cargill is rated above Thailand's International Long-term local currency IDR of 'A-' with a Stable Outlook. As a result, the National rating of the bonds is capped at the sovereign National rating of 'AAA(tha)'. Fitch notes that any rating action that results in Cargill's rating falling below the Thai sovereign will affect the debentures' National rating. Investors should note that a one-notch change in an International rating could result in a more than one notch change in a National rating.
Cargill's ratings reflect its competitive position as the largest agricultural company based in the United States and as one of the largest privately-owned companies in the world. Its operations span every major country and almost every agricultural commodity. Key agricultural operations include oilseed processing, corn milling, meat processing, fertiliser production and animal nutrition. The ratings incorporate Cargill's high geographic and product line diversification, which lessens operating earnings volatility associated with the agricultural sector.
The ratings also factor in the company's liquidity, which is enhanced by readily marketable inventory (RMI) and substantial cash balances. Cargill's majority equity stake in The Mosaic Company (Mosaic) is currently valued at approximately USD15bn. Cargill has the option to monetise or add to its investment in Mosaic, although management has not indicated a plan to do so. Balancing out Cargill's credit strengths are the company's significant exposure to higher risk financial businesses and weaker near-term demand for agribusiness and fertiliser products.
The pace of Cargill's earnings growth has slowed substantially with the weak global economy. While its net earnings rose 4% to USD3bn in the first nine months to end-February 28, 2009, net earnings fell 68% to USD326m in the fiscal third quarter to end-February 28, 2009. Weaker demand, lower sales volumes and fewer trading opportunities have affected results and may continue to do so in the near-term. Cargill is expected to report its fiscal 2009 year-end results on August 18, 2009.
In addition to evaluating traditional credit measures, Fitch makes several analytical adjustments for Cargill. Fitch's analysis of agricultural companies takes into consideration leverage ratios that exclude debt used to finance RMI (which is highly liquid and generally hedged against price risk). Similarly, interest expense on debt used to finance RMI is reclassified as cost of goods sold and thus excluded from EBITDA and interest expense. Fitch has also excluded the debt and related earnings and interest expense of Mosaic when evaluating Cargill's credit metrics. While Cargill retains a majority interest in Mosaic which is consolidated, Mosaic's debt is non-recourse and not guaranteed by Cargill.
With the adjustments described above, Cargill's leverage (total debt to operating EBITDA) was 2.0x for the latest 12 months ended February 28, 2009, and EBITDA to gross interest expense was 6.1x. Non-recourse debt of Mosaic was USD1.4bn and Mosaic's EBITDA was USD4.1bn for the latest 12 months ended February 28, 2009. On an unadjusted basis, Cargill's total debt to operating EBITDA was 1.7x while EBITDA/interest was 7.8x.
Founded in 1865, US-based Cargill is 89%-owned by family members, with the remainder owned by management and the employee stock ownership plan. Cargill's core operations are within five segments - agricultural services, origination and processing, food ingredients and applications, risk management and financial, and industrial - and have between them more than 80 business units.
Contacts: Lertchai Kochareonrattanakul, Vincent Milton, Bangkok, +662 655 4755; Judi M. Rossetti, CPA/CFA, Chicago, +1 312 368 2077.
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].