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Celulosa Arauco y Constitucion S.A.
Chicago, Illinois, USA, 22 July 2009 -- (BUSINESS WIRE) -- Fitch Ratings has assigned a 'BBB+' rating to Celulosa Arauco y Constitucion S.A.'s (Arauco) USD 500 million, 7.25% notes due 29 July 2019. Proceeds from this debt issuance will be used to repay upcoming debt amortizations and for general corporate purposes.

The rating takes into consideration Arauco's solid business position globally and its strong financial profile. Between 2003 and 2008, Arauco averaged a funds from operations (FFO)/adjusted leverage ratio of 2.2 times (x) and a net debt/EBITDA ratio of 1.9x. During this period, the company spent almost USD 4 billion on capital expenditures and acquisitions. As a result of these investments, the company is the second largest producers of market pulp in the world and one of the leading producers of lumber and panels.

Arauco is one of the lowest cost producers of bleached pulp in the world, with its cash cost or production estimated to be USD 340 per ton during 2008. This figure compares with more than USD 500 per ton for most of its global competitors, allowing Arauco to remain quite profitable throughout the trough in the pulp cycle. Further factored into Fitch's credit ratings is Arauco's ownership of nearly 950,000 hectares of forest throughout Latin America that have an accounting value of more than USD 3 billion.

Arauco generated USD 1.138 billion of EBITDA and USD 783 million of cash flow from operations (CFO) during 2008. These figures compare with USD 1.360 billion of EBITDA and USD 1.029 billion of CFO during 2007. During 2008, Arauco invested USD 515 million in capital expenditures, a decline from USD 591 million in 2007, and paid USD 301 million of dividends, an increase from USD 284 million during 2007.

During 2009, Arauco's EBITDA is expected to decline sharply. The company generated only USD 126 million of EBITDA during the first quarter of 2009, a decline from USD 348 million during the same quarter of 2008. The fall in profitability is due to a sharp drop in pulp prices and weak demand for sawn timber products and panels. As of 31 March 2009, Arauco had USD376 million of cash and marketable securities and USD 2.869 billion of debt. During May, the company announced that it had agreed to jointly purchase 130,000 hectares of forest assets in Uruguay from ENCE. Arauco's portion of this acquisition, made jointly with Stora Enso, will total USD 172.5 million.

To respond to the current economic crisis Arauco has scaled back its capital investment plan to between USD 300 million and USD 400 million for 2009. It also has closed a couple of its sawmills. Arauco's controlling shareholder, Empresas Copec, has a strong financial profile and low liquidity needs so dividends could be scaled back from 40% of net income if needed. In spite of these efforts, the company will have a weak financial performance during 2009. For the year, Fitch believes that under current market conditions Arauco would generate about USD 700 million of EBITDA and less than USD 600 million of CFO. These historically low figures would result in a net leverage ratio of more about 3.0x and a CFO/total debt ratio above 3.5x.

Arauco's current Fitch foreign and local currency Issuer Default Ratings (IDRs) are both 'BBB+'. The company is one of the largest market pulp companies in the world with more than 3 million tons of production capacity per year. It is also the largest producer of sawn timber in the Southern Hemisphere, operating nine sawmills in Chile and two in Argentina. In addition to these sawmills, the company also owns five remanufacturing plants where lumber is processed into value-added products, such as ceiling and chair rail moldings, edge-glued panels, and laminated products. The company currently owns three MDF plants, two particleboard plants, two plywood plants, and a hardboard plant.

Empresas Copec, S.A. (Copec) owns 99.98% of Arauco. Copec, a leading conglomerate in Chile, also is involved in fuel distribution, power generation, fishing, and gas distribution. AntarChile S.A. (AntarChile) directly and indirectly owns 60.82% of Copec. AntarChile, in turn, is 74.29% owned by the Angelini Group, headed by Roberto Angelini. Fitch currently rates Copec's international scale rating 'BBB+' and AntarChile's national scale rating 'AA-(chl)'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 also are available from the 'Code of Conduct' section of this site.


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