.
Carrera 19A No. 90-13
Oficina 708
Bogota, Colombia
Phone: 57 (1) 5190354
Fax: 57 (1) 5190636
http://www.brc.com.co
Bogota D.C., May 13, 2015
Ms. SANDRA PATRICIA PEREA DIAZ
Delegate Superintendent for Issuers, Investment Portfolio and Other Agents
Office of the Superintendent of Financial Institutions of Colombia
Calle 7 No. 4 - 49
Bogotá D.C.
REF: 0084-000002 BRC Investor Services S.A. Sociedad Calificadora de Valores.
53 Rating reports
31 Reporting of information
NO ANNEXES
Ms. Perea:
This is to inform the Periodic Review of the Issuance and Placement of Ordinary Bonds
and/or Commercial Papers Program of Grupo Argos S.A. for COP$1 trillion, approved
by the Technical Committee in a meeting held on May 13, 2015, as stated in the Minutes No.
757.
The following are the decisions adopted by the Committee:
• Granted the Long-Term Debt Rating: AAA and assigned Negative Outlook
• Granted the Short-Term Debt Rating: BRC1+
Contacts:
Alba Luz Buitrago Junco
[email protected]
Ana María Carrillo Cárdenas
[email protected]
Copies: Mr. Ricardo Sierra, Financial Vice President, Grupo Argos S.A.; Alejandro Zuluaga, Corporate
Finance Manager, Grupo Argos S.A.
1 of 3
PRESS RELEASE
BRC Standard & Poor's affirmed Grupo Argos S.A. Issuer rating at AAA and assigned
negative outlook. Also, it affirmed Long-Term Debt rating at AAA and Short-term Debt
rating at BRC1+ for the Ordinary Bonds and/or Commercial Papers Issuance and
Placement Program of Grupo Argos S.A. for COP$1 trillion, and assigned Negative
Outlook.
The AAA rating is the highest rating assigned by BRC Standard & Poor's, and indicates that
the issuer´s ability to meet its financial obligations is very strong.
Bogota, D.C. May 13, 2015. The Technical Committee of BRC Standard & Poor's affirmed
the following ratings: 1) AAA Issuer rating to Grupo Argos SA and assigned Negative
Outlook; and 2) Long-term Debt rating at AAA and Short-Term rating at BRC1 + to the
Ordinary Bonds and/or Commercial Papers Issuance and Placement Program of Group
Argos SA for COP$ 1 trillion, and assigned Negative Outlook.
As a result of the effectiveness of the corporate strategy and consistency in the
implementation by the management of the organization and its subsidiaries, in 2014 Grupo
Argos managed to maintain positive trend in its revenues over the last two years on a
consolidated basis (growth of 16.91% versus an average increase of 14.83% between 2012
and 2013), and also recorded the highest EBITDA ever in its history (COP$ 2.07 trillion and
increased its geographic and currency diversification. Our expectation that the organization
maintains this trend over the coming years (considering the current conditions of the
economies and markets in which the company operates), along with the size, marketability
and continuous growth in value of its non-strategic investment portfolio (which amounted to
COP$ 6 trillion in 2014) are the main reasons why BRC Standard & Poor's maintained the
rating assigned to Grupo Argos.
However, to meet the goals set out in its strategic plan, the holding company and its
subsidiaries related to mature businesses (cement and energy) have been implementing
since 2010 an aggressive investment plan whose funding requirements have implied a
significant increase in the Group’s financial obligations, reflected in a gradual increase in its
debt indicators. For this reason, we assigned a negative outlook to the rating, considering
that as at December 2014, the gross consolidated debt / EBITDA ratio reached its highest
level (4.58 times [x])1, surpassing not only the average of the previous four years (3.40x), but
also the values recorded by similarly rated companies (less than 2.5x).
1
Does not include the salvage value of BOCEAS issued by Grupo Argos in 2012.
2 of 3
CAL-FOR-03-R9
In our opinion, although the investments made by Grupo Argos are in line with its strategic
vision and have contributed to the consolidation of its business in the region and to the
increase in its revenues and EBITDA, the deterioration observed in its credit metrics is due
to the pace of the investments made by the Group. Under the current strategy, the Group’s
internal generation of capital is growing at a slower pace than its debt, since the recovery of
the initial investments does not happen before new acquisitions are made.
Considering the nature of business of the organization (which require high levels of capital
with long investment recovery periods), our perspective on the evolution of the economies
and sectors in which it participated at the end of 2014 and the expected results of current
projects to generate savings, operational synergies and reduce its financial obligations, we
expect a gradual reduction of the consolidated gross debt/EBITDA ratio over the next three
years to reach 3.48x in 2017. In this sense, the realization of current revenue expectations,
EBITDA and debt set by Grupo Argos and its subsidiaries for this period will be instrumental
in solving the negative outlook, as its projections include a greater reduction in its debt
indicators than the current estimates. The fulfillment of these projections would lead us to
revise the assigned rating.
On April 16, 2015, Grupo Argos announced its foray into the concessions business through
the acquisition of 24.8% stake in Organización de Ingeniería Internacional S.A. - Odinsa.
However, at this stage we do not yet know what the final stake of the Group in this company
will be (considering that the Public Takeover Bid (TOB to purchase between 20% and 25%
additional shares had not been executed on the date of our review), the Group does not yet
have final projections on the impact that this new activity will have on its consolidated and
individual financial statements. Given this uncertainty, our projections do not include this
transaction.
The investment in Odinsa is in line with the Group's strategic plan. It will increase the
diversification of its portfolio of investments in the infrastructure sector, will bring new assets
to some of its existing businesses (ports and energy) and will provide synergy to its new
subsidiary in terms of finance sources and costs. In our opinion, although the concessions
industry in Colombia has a high growth potential for the development of the fourth-generation
(4G) road projects promoted by the national government, it brings new risks for the group
which, for their external nature, could not be fully mitigated by the knowledge and experience
of Odinsa. The strategic approach that Grupo Argos will implement in this subsidiary will be
discussed in our next rating review.
Press contact:
Alba Luz Buitrago Junco
Senior Analyst Tel: 519 0354
[email protected]
3 of 3
CAL-FOR-03-R9