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Tuesday, July 15, 2025

TCL bond issue to repay debt

by

20140507

US-based cred­it rat­ing agen­cies Stan­dard & Poor's (S&P) and Fitch Rat­ings on Tues­day gave low rat­ings to Trinidad Ce­ment Ltd's (TCL's) planned bond is­sue an­nounced on the T&T Stock Ex­change (TTSE) Mon­day.TCL an­nounced its plan to is­sue se­nior se­cured first lien notes (bonds) not ex­ceed­ing an ag­gre­gate prin­ci­pal amount of US$325 mil­lion.The bonds will be is­sued ap­prox­i­mate­ly 80 per cent in a US dol­lar tranche, and the re­main­der in a TT dol­lar tranche, S&P said.

In its no­tice to the TTSE, TCL said: "Ap­prox­i­mate­ly US$295 mil­lion from the pro­ceeds of the of­fer­ing is ex­pect­ed to be utilised by TCL to re­pay ex­ist­ing debt. The re­main­der of the pro­ceeds of the of­fer­ing is in­tend­ed to be used for work­ing cap­i­tal im­prove­ment and to pay all fees and ex­pens­es as­so­ci­at­ed with the of­fer­ing."TCL said it ex­pects to is­sue the bonds with a sev­en year tenor, ma­tur­ing in 2021. The coupon rate has not yet been de­cid­ed, and may be in­flu­enced by the cred­it rat­ing agen­cies' rat­ings.

How­ev­er, TCL said "in­ter­est on the notes is ex­pect­ed to be fixed and paid on a se­mi-an­nu­al ba­sis in ar­rears," com­menc­ing ap­prox­i­mate­ly six months af­ter is­suance. Sub­ject to reg­u­la­to­ry ap­provals, TCL ex­pects to close the of­fer­ing this month."Weak busi­ness risk pro­file

Ex­plain­ing why it rat­ed the TCL bonds "B," which is "high­ly spec­u­la­tive" and five notch­es be­low in­vest­ment grade, mak­ing it what is known in the in­dus­try as "junk bonds," S&P said: "The rat­ing on TCL re­flects our as­sess­ment of its "weak" busi­ness risk pro­file, "high­ly lever­aged" fi­nan­cial risk pro­file, and "less than ad­e­quate" liq­uid­i­ty."S&P said it as­sess­es TCL's busi­ness risk pro­file as "weak," giv­en the com­pa­ny's scale rel­a­tive to its glob­al peers.

"How­ev­er, we be­lieve its re­gion­al scope and end-mar­ket di­ver­si­fi­ca­tion are favourable com­pared to those of its Latin Amer­i­can peers. We view the com­pa­ny's lead­ing po­si­tion in the Caribbean as its main strength.On the oth­er hand, we con­sid­er that TCL's op­er­at­ing ef­fi­cien­cy has been hin­dered by low lev­els of in­vest­ments in its pro­duc­tion fa­cil­i­ties," S&P said.

Po­ten­tial for im­prove­ments

"How­ev­er, we be­lieve that the com­pa­ny's abil­i­ty to strength­en its op­er­at­ing mar­gins dur­ing 2013 shows the po­ten­tial for fur­ther im­prove­ments, once the com­pa­ny ad­dress­es its cap­i­tal ex­pen­di­ture (capex) re­quire­ments."Ad­di­tion­al­ly, ex­ports gen­er­ate about 30 per cent of the com­pa­ny's to­tal rev­enues, al­though an un­usu­al prac­tice in the in­dus­try as op­er­at­ing ef­fi­cien­cies are lost due to high trans­porta­tion cost, S&P said.

That notwith­stand­ing, S&P said it be­lieves TCL's ex­per­tise of more than 60 years, to­geth­er with its ge­o­graph­ic lo­ca­tion and lim­it­ed ce­ment sup­ply in the mar­kets it serves, in­creas­es its pric­ing bar­gain­ing pow­er, al­low­ing it to eas­i­ly pass on cost in­creas­es to end-cus­tomers.

"High­ly lever­aged"

S&P as­sessed TCL's fi­nan­cial risk pro­file as "high­ly lever­aged." TCL's ag­gres­sive debt-fi­nanced growth strat­e­gy, along with the glob­al fi­nan­cial cri­sis in 2008-2009, weak­ened earn­ings be­fore in­come tax, de­pre­ci­a­tion and amor­ti­za­tion (EBIT­DA) and cash flow gen­er­a­tion, lead­ing the com­pa­ny to de­fault on its debt oblig­a­tions in 2011.

S&P said: "We be­lieve that TCL is high­ly ex­posed to cur­ren­cy mis­match as the vast ma­jor­i­ty of to­tal debt will be US dol­lar de­nom­i­nat­ed af­ter the is­sue, where­as more than 70 per cent of its EBIT­DA is de­nom­i­nat­ed in TT dol­lars."

What Fitch said:

Ex­plain­ing why it rat­ed the bonds "B-" which is six notch­es be­low in­vest­ment grade, or two cat­e­gories deep in­to junk, Fitch Rat­ings said: "TCL Group's 'B-' rat­ings re­flect its busi­ness po­si­tion in the rel­a­tive­ly small Caribbean ce­ment mar­ket, high lever­age, weak liq­uid­i­ty, and volatil­i­ty of its cash flow gen­er­a­tion due to the cycli­cal­i­ty of the ce­ment in­dus­try.TCL Group has rel­a­tive­ly small op­er­a­tions with to­tal ca­pac­i­ty across its three ce­ment op­er­at­ing fa­cil­i­ties of 1.5 met­ric tons (MT).

Favourable out­look

Fitch be­lieves the com­pa­ny will be able to slow­ly delever­age, as op­er­at­ing cash flow should con­tin­ue to im­prove as vol­umes and sales prices in­crease."Fur­ther fac­tored in­to the rat­ings is the favourable out­look for the Caribbean ce­ment in­dus­try over the medi­um term dri­ven by the re­gion's pos­i­tive macro­eco­nom­ic and busi­ness en­vi­ron­ment, Fitch said.The agency said: "TCL Group's fi­nan­cial per­for­mance and cash flows sta­bilised in 2013 since the eco­nom­ic down­turn dur­ing 2011-2012 with pro­gres­sive mo­men­tum in­to 2014.

In ad­di­tion, the com­pa­ny has no sig­nif­i­cant or im­me­di­ate cap­i­tal ex­pen­di­tures re­quired in the medi­um-term, which should al­low TCL to use its cash flow to re­pay debt and re­build its cash bal­ances."


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