Bangkok--11 Aug--Fitch RatingsFitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed the National Long-term rating on Cargill Incorporated’s (Cargill, rated ‘A’/‘F1’/Stable) THB3.5bn senior unsecured debentures due 2011 at ‘AAA(tha)’. The Outlook is Stable.
Cargill is rated above Thailand’s International Long-term local currency Issuer Default Rating (IDR) of ‘A-’ with a Negative Outlook. However, 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 that of the Thai sovereign’s 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 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 extensive geographic and product line diversification, which lessens operating earnings volatility associated with the agricultural sector. Balancing out Cargill's credit strengths are the company's significant exposure to higher risk financial businesses and susceptibility to periodic negative free cash flow, particularly when commodity prices rise.
The ratings also factor in the company's liquidity, which is enhanced by readily marketable inventory (RMI) and substantial cash balances. In addition, Cargill's majority equity stake in The Mosaic Company (Mosaic) is currently valued at approximately USD14bn. Cargill has the option to monetise or add to its investment in Mosaic, although the management has not indicated a plan to do so. Fitch expects Cargill can significantly reduce its debts should all or a substantial portion of this investment be monetised.
Cargill’s earnings for the nine month period ending 28 February 2010, excluding earnings from Cargill’s majority investment in The Mosaic Company (Mosaic) and discontinued operations, nearly matched the earnings from the previous year. For the quarter ended 28 February 2010, with the same exclusions, Cargill’s results nearly doubled from a year ago when the company was negatively impacted by the global recession. All of Cargill’s segments generated improved results over the same quarter in the fiscal year of 2009. Earnings benefited from the large North American harvest as well as an improvement in economic growth and the financial markets. The company has seen an increase in global demand for agribusiness products as the global economic recovery gained traction. Cargill is expected to report its fiscal 2010 year results on 17 August 2010.
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 1.8x for the latest 12 months ended 28 February 2010 and EBITDA to gross interest expense was 9.3x. Non-recourse debt of Mosaic was USD1.4bn and Mosaic's EBITDA was USD1.3bn for the latest 12 months ended 28 February 2010. On an unadjusted basis, Cargill's total debt to operating EBITDA was 2.6x while EBITDA/interest was 6.9x.
Founded in 1865, US-based Cargill is primarily-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; The five segments have between them more than 80 business units.
Applicable Criteria available on Fitch’s website at www.fitchratings.com: ‘Corporate Rating Methodology’.
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Contacts: Lertchai Kochareonrattanakul, Vincent Milton, Bangkok, +662 655 4755; Judi M. Rossetti, CPA/CFA Chicago, +1 312 368 2077.