Nexa's Stand-Alone Credit Profile Cut To 'bb-' On Expected Weaker Metrics; 'BB+' Ratings Affirmed On Group Support

  • The steep drop in zinc prices and operating disruptions following the COVID-19 outbreak will deepen the deterioration in Nexa's credit metrics in 2020.
  • In addition, Luxembourg-based mining company is committed to a sizeable investment plan and dividend payout that will further pressure leverage.
  • As result, on March 25, 2020, S&P Global Ratings revised downward Nexa's stand-alone credit profile (SACP) to 'bb-' from 'bb+'. At the same time, we affirmed our 'BB+/B' issuer credit and 'BB+' issue-level ratings on Nexa.
  • The positive outlook mirrors that on its parent company, Votorantim S.A. (BBB-/Positive/--), which in turn mirrors that on Brazil (BB-/Positive/B).
SAO PAULO (S&P Global Ratings) March 25, 2020—S&P Global Ratings took rating actions described above. The declining trend in zinc and copper prices since 2019 was intensified by the COVID-19 outbreak, which also resulted in production stoppages in the company's Peruvian operations. Uncertainties regarding the longevity of the closures in Peru and a potentially similar action in Brazil hinder Nexa's ability to contain leverage in 2020, while the company is committed to a sizeable investments for it Aripuanã project. We now expect adjusted debt to EBITDA and funds from operations (FFO) to debt to reach above 4x and below 20%, respectively, in 2020.
The company's solid cash position and very low short-term debt, coupled with the access to a fully undrawn revolving credit facility of $300 million, currently supports the 'bb-' SACP. We believe Nexa has flexibility to adjust capex if volumes tumble due to COVID-19 impact.
We continue to view Nexa as a highly strategic subsidiary of Votorantim, which would provide, in our view, extraordinary support if necessary. Therefore, we limit our rating on Nexa to one notch below that on its parent company. In this sense, the positive outlook on Nexa mirrors the outlook on Votorantim, despite the former's weaker credit metrics.
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