Standard & Poor's Ratings Services lowered its long-term foreign currency corporate credit rating of MHP S.A. to 'CCC+' from 'B-'.
The downgrade of MHP follows the same action on Ukraine and our downward
revision of the country's transfer and convertibility (T&C) assessment to
'CCC+' from 'B-', and takes into account that MHP's core operating assets are
in Ukraine. The revised T&C assessment constrains the foreign currency rating
on MHP because of the likelihood of increased restrictions on foreign exchange
repatriation (changing funds held abroad into local currency) and, more
generally, negative sovereign interaction.
S&P believes that Ukraine's deteriorated creditworthiness increases the risk of
the introduction of laws instructing export companies to convert their hard
currencies, which could affect MHP's dollar-denominated debt service.
S&P also believes that weakening sovereign credit quality and political
instability in Ukraine could constrain access to financial markets for
Ukrainian issuers. Increasing taxes or delays in refunds of taxes can lead to
working capital outlays and additional debt. MHP has a bond maturing in the
first half of 2015 and therefore depends on access to capital markets.
S&P regard MHP's country risk exposure to Ukraine as a key risk factor. MHP
derives over two-thirds of total sales in its domestic market.
MHP has an ambitious expansion strategy, in S&P's view, with related execution
risks, and is exposed to the volatile agribusiness industry. The company has
indicated it is increasing its poultry production capacity to 600,000 tons and
investing in land bank expansion.
S&P would revise the outlook to stable if conditions in Ukraine stabilized and
we saw lower risk related to currency controls and repatriation requirements.
Any rating upside is closely linked to a positive rating action on the
sovereign. However, upside could also occur if MHP demonstrated its ability to
continue servicing its foreign currency debt despite the liquidity constraints
stemming from the sovereign debt.
Source: Standard and Poor's