DBRS Confirms Canpotex Limited at A (low) with Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt ratings of Canpotex Limited (Canpotex or the Company) at A (low) with Stable trends. The confirmation primarily reflects: (1) Canpotex’s unique arrangement as the exclusive marketer and distributor of Canadian potash exports outside of Canada and the United States for its three shareholders, which provides that all of the Company’s expenses (including financing costs) are to be paid from potash sales before any net revenues are remitted to the shareholders; (2) the continuation of substantial and growing production volumes by shareholders, which is expected to result in the continuation of revenues that substantially exceed Canpotex’s total expenses; (3) Canpotex’s high-quality rail, port and sea-faring vessel infrastructure footprint, which can accommodate current needs and which is expected to be improved and expanded to accommodate future growth, thereby gradually improving the Company’s business risk profile; and (4) the stability of the financial risk profile despite weak potash market conditions. Canpotex’s sales are completely dependent upon overseas potash markets, which have proven to be volatile in the past.

Reduced discipline among global producers and excess supply in recent years has led to price weakness. Although modest price recovery was observed in H2 2014, the average benchmark price of $299 per tonne (benchmark: Vancouver MOP; source: Bloomberg) during the 12 months to June 30 2015 (LTM 2015) remained 29% below the average during 2011-2013. While not a favourable dynamic for Canpotex, this has illustrated the robustness of Canpotex’s credit profile, with revenues from potash sales still exceeding total expenses by over four times in LTM 2015. The Company has continued to incrementally increase its potash shipments and its infrastructure footprint to accommodate shareholder growth and market demand. To this end, Canpotex issued debt in 2013 and 2015.

Going forward, DBRS anticipates that the Company will continue to incrementally increase its potash shipments and build up its infrastructure, thus strengthening its business risk profile. Canpotex’s financial risk profile is also expected to remain very strong, even in the face of further market weakness. A decision to proceed with the Prince Rupert port project could require substantial debt financing, but the Company would not have trouble servicing substantially more debt capital.

Canpotex’s unique credit strengths, both in terms of its business and financial profiles, are robust as its performance during the recent market volatility has illustrated. DBRS does not expect the rating to be downgraded in the near to medium term.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is General Corporate Methodology (October 2015), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.