OREANDA-NEWS. Fitch Ratings has affirmed the following ratings of Alfa, S.A.B. de C.V. (Alfa):

--Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-';
--Long-term local currency IDR at 'BBB-';
--Senior notes USD500 million due 2024 at 'BBB-';
--Senior notes USD500 million due 2044 at 'BBB-'.

The Rating Outlook is Stable.

Alfa's ratings reflect its diversified business portfolio, strong market position in the industries it participates, solid consolidated cash flow generation and sound financial position. The ratings also incorporate the credit quality of its main subsidiaries, debt allocation between holding and operating companies, the expected flow of dividends to the holding, as well as the liquidity position at the holding. The ratings are limited by the cyclicality of its operations in the petrochemical, automotive, and oil and gas industries, and its exposure to the volatility of its main raw materials through its business portfolio.

KEY RATING DRIVERS

Solid Business Profile:
Alfa is one of the largest business groups in Mexico with leading market positions across the industries it participates. Alpek, S.A.B. de C.V. (Alpek; 'BBB-'/Outlook Stable), its petrochemical subsidiary, holds leading market positions in PTA and PET in North America, and is the sole producer of PP and CPL in Mexico. Tenedora Nemak, S.A. de C.V. (Nemak; 'BB'/Outlook Positive), is a leading producer of high tech aluminum components for the automotive industry in North American, South American and European markets. Sigma Alimentos, S.A. de C.V. (Sigma; 'BBB-'/Outlook Stable) is the largest producer of processed foods in Europe, and has important operations in Spain, U.S. and other Latin American countries. Additionally, Alfa has operations in the information technology (IT) and telecomm industry with Alestra, S.A. de C.V., which is an important niche player in Mexico as a provider of value added IT services to the corporate segment, as well as operations in the exploration and production of oil and gas in the South of Texas and Mexico with its subsidiary Newpek.

Diversified Business Portfolio:
Fitch considers that risks associated to volatile industries are partially mitigated by the diversity of revenues and cash flows generations across industry sectors and their relatively low correlation, which diminishes the overall volatility of the business portfolio. Alfa's petrochemical, automotive, and oil and gas businesses are cyclical and exposed to raw material volatility and global economic conditions, while processed foods, and IT and telecom businesses are relatively stable. However, petrochemical and automotive business cycles counterbalanced each other through the cycles, stabilizing Alfa's consolidated cash flow. The company's geographical and currency diversification with operations in 24 countries and around 65% of consolidated revenues from exports and subsidiaries outside Mexico, bring additional flexibility to mitigate the risk associated to economic downturns or input volatility and maintain consolidated cash flow generation relatively stable.

Adequate Net Leverage:
Fitch's expectation incorporates for 2015-2016 Alfa's total debt to EBITDA on a consolidated basis to be around 3.0x and the net debt to EBITDA to be 2.5x. Fitch conservatively projects annual debt reductions of USD150 million-USD200 million and EBITDA growth in the low single digits. Additionally, a potential initial public offering (IPO) of Sigma should contribute to improve consolidated leverage, as a portion of the proceeds is expected to be used to pay down debt. For the year ended 2014, on a pro forma basis, including the full year results of Campofrio's acquisition by Sigma, Alfa's total debt to EBITDA and net debt to EBITDA were approximately 2.9x and 2.4x, respectively. The company's total debt was USD6.2 billion at year ended 2014.

Alfa's ratings also reflect its strategy to growth in the energy in Mexico and its financial policy to maintain a consolidated net debt to EBITDA between 1.5x to 2.5x. The company will be evaluating investment opportunities in the 'Round One' in Mexico, particularly, focused on shallow water and mature oil fields. Fitch anticipates that Alfa could commit important investments in this sector by 2016, and expects that the resources to finance these investments would be supported mainly with the potential IPO's from its subsidiaries Sigma and Nemak, as current net leverage is in the weak range of its long-term target.

Strong Liquidity:
Fitch considers that Alfa's liquidity position is strong in relation to its short-term debt maturities. As of Dec. 31, 2014, the company's consolidated cash balance was USD1.1 billion with short-term debt maturities of USD655 million. In addition, at the holding level Alfa had cash balances of USD198 million, available committed and non-committed credit facilities of USD175 million and USD275 million, respectively, and short-term debt maturities of USD225 million as of Dec. 31, 2014. Fitch considers that Alfa's liquidity is also supported by its consolidated free cash flow (FCF) generation, which in 2014 was approximately USD369 million after covering capex of USD1.1 billion and no dividend payments. Fitch views that the company's good access to capital markets and credits facilities provide financial flexibility to face its upcoming debt maturities for the following three years of USD655 million, USD401 million (after the refinancing on March 2015 of EUR500 million bonds due in 2016 at Campofrio), and USD501 million.

Stable Dividend Inflows:
Fitch incorporates into the ratings that Alfa at the holding level will be receiving approximately USD300 million of annual dividends from its operating subsidiaries. These levels of dividends combined with its cash position should be sufficient to cover its debt service, corporate expenses, taxes and dividend payments to Alfa's shareholders. In 2014, Alfa did not pay dividends and received around USD344 million of cash inflows of which USD177 million were dividends from its subsidiaries and USD167 million was from a payment of an intercompany loan with Nemak. Additionally, Fitch believes Alfa's subordination of debt at the holding level is mitigated by its liquidity position, diversified business portfolio and dividend control in almost all its subsidiaries, which translates to a stable flow of dividends.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case include:
--Revenue decreases of low single digits in dollar terms in 2015 and EBITDA margin to remain at around 12%;
--Annual debt reductions of around USD150 million;
--Consolidated net leverage to be approximately 2.5x in 2015-2016;
--Energy projects to be financed with potential IPOs.

RATING SENSITIVITIES

Factors that could lead to negative rating actions include:

--A change in the company's financial strategy towards additional debt at the holding level to finance investment in the energy sector in Mexico;
--A simultaneously deterioration in the operating performance of Alpek and Nemak;
--Sustained deterioration in the flow of dividends from its operating subsidiaries due to adverse market conditions or debt funded acquisitions;
--Sustained net debt to EBTIDA ratio above its long-term target of 2.5x;
--A downgrade in the ratings of its operating subsidiaries could also pressure Alfa's ratings.

Considering the structural subordination of the debt at the holding company level and existing ratings of the subsidiaries, a positive rating action is not foreseen in the medium to long term. However, factors that could lead to positive rating actions include:

--Stronger liquidity position at the holding company and higher consolidated FCF generation through the business cycle;
--A significant improvement in its capital structure associated to debt reduction;
--Upgrades in the credit quality of its operating subsidiaries.