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Fitch Affirms General Shopping Brazil's IDR at 'BB-'; Outlook Stable
Fitch Affirms General Shopping Brazil's IDR at 'BB-'; Outlook Stable Business Wire NEW YORK -- October 24, 2013
Fitch Ratings has affirmed the ratings of General Shopping Brazil (GSB) and its fully owned subsidiaries as follows: General Shopping Brasil S.A. (GSB): --Foreign currency Issuer Default Rating (IDR) at 'BB-'; --Local currency IDR at 'BB-'; --National scale ratings at 'A-(bra)'. General Shopping Finance Limited (GSF): --Foreign currency IDR at 'BB-'; --USD250 million perpetual notes: at 'BB-'. General Shopping Investment Limited (GSI): --Foreign currency IDR at 'BB-'. --USD150 million subordinated perpetual notes at 'B'. The IDR's of GSF and GSI have been linked to their parent company GSB through Fitch's 'Parent and Subsidiary Rating Linkage' criteria.
The Rating Outlook for GSB, GSF and GSI is Stable. The ratings reflect GSB's important position in the shopping markets in the southern and southeastern regions of Brazil, its stable and predictable cash flow generation, as well as its low working capital requirements with leases responsible for most maintenance expenses, adequate liquidity position and manageable debt amortization schedule. The ratings also consider a positive view on the Brazilian mall industry in the medium to long term based on its fundamentals, which include Brazil's positive demographic changes, and the upward migration of economic classes that has resulted in a growing middle class. Positive retail consumption trends coupled with still low penetration levels for the retails industry also support the ratings. GSB's credit ratings are constrained by its high leverage due to large capital expenditures during the past few years. GSB's limited geographical and revenue diversification also are credit factors that constrain the ratings. In the short term, a slowdown of the Brazilian retail environment could result in more moderate revenue growth rates for the shopping mall industry. The sector has demonstrated resilience to past slowdowns, however, due to its revenue and rent-contract structures that incorporate fixed and inflation adjusted components, which reduce the volatility in revenues and cash flow generation. The Stable Rating Outlook reflects the expectation that GSB will continue to deliver positive operating results based upon its business position and the high quality of its assets. KEY RATING DRIVERS: Important Regional Market Position: GSB's ratings reflect the company's important regional business position as one of the largest shopping center operators in Brazil's southeastern and southern regions with participation in 16 shopping centers and a total owned gross leasable area (GLA) of 255,000 square meters (m2) by the end of June 30, 2013. Occupancy trends have been positive and occupancy rates have been at about 96% during the past 24 months. Stable Margins and Growing EBITDA: Fitch expects GSB to maintain stable EBITDA margins of around 70%. The company's stable margins reflect a lease structure that is primarily comprised of fixed rent payments and tenant reimbursements, which cover costs associated with property management and taxes. GSB's EBITDA for the latest 12 months (LTM) ended June 30, 2013 was BRL142 million, a 30% increase over the LTM ended June 30, 2012. The EBITDA growth was driven by investments of BRL391 million during the LTM June 2013. Net capex levels for 2013 are projected to be approximately BRL187 million. GSB's ratings incorporate expectations that the company's EBITDA will grow to around BRL165 million during 2013. Deleveraging Expected: The rating affirmation factor in an expectation that GSB's management will focus on deleveraging during the next 12-month period. GSB's total debt increased to BRL1.4 billion as of June 30, 2013 from BRL1.1 billion as of June 30, 2012. The company's net leverage ratio, as measured by net debt/EBITDA, was 6.3x as of June 30 2013. This represents a modest increase from 5.9x as of June 30, 2012. Fitch's base case rating scenario is that GSB's net leverage will be at approximately 6.0x at the end of 2013. Adequate Liquidity: As of June 30, 2013, GSB had BRL531 million of cash and marketable securities, which comfortably covers scheduled debt payments of BRL233 million during the 12 month period ended June 30, 2014. GSB maintains approximately 33% of its total GLA as unencumbered assets. The estimated market value of these assets is approximately BRL900 million, which provides an additional source of liquidity. GSB's total investment property value is estimated at about BRL1.42 billion as of June 30, 2013. RATING SENSITIVITIES: The Stable Outlook for GSB's ratings incorporate the view that the company's liquidity will remain adequate with a cash position of about BRL350 million and that the company's net leverage will trend toward 6.0x by the end of 2013. A negative rating action could result from a deterioration of the company's leverage due to project delays, lower cash flow generation (EBITDA) by existing malls, and/or incremental debt associated with acquisition activity. A weakening of the company's liquidity position would also hinder credit quality and could result in a negative rating action. Considering the company's high leverage, GSB's ratings are unlikely to be upgraded during the next 12 months. Additional information is available at 'www.fitchratings.com'.
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