The 'BBB' rating is supported by Tenaris' recent strong operating earnings and low leverage. In 2004, Tenaris generated EBITDA of US$899 million, an increase of about 50% over 2003 after adjusting for nonrecurring items. Tenaris ended 2004 with total debt of US$1.26 billion, cash of $431 million and net debt of US$828 million. As of Dec. 31, 2004, leverage ratios were low, with a total debt-to-EBITDA ratio of 1.4 times (x) and a net debt-to-EBITDA ratio of 0.9x. Tenaris' credit-protection measures are strong for the rating category. In 2005, Fitch expects Tenaris' EBITDA to total about US$1 billion. The rating incorporates an expectation that, despite increased capital expenditures in 2005, much of Tenaris' free cash flow will be used to reduce total debt to around US$900 million. Tenaris should end the year with a total debt-to-EBITDA ratio of less than 1.0x and a net debt-to-EBITDA ratio of about 0.6x.
Tenaris is highly exposed to the cyclicality of the oil and gas industry as Tenaris' operating income is indirectly affected by world oil prices. Tenaris' largest customers are leading oil producers with whom the company has established solid and long-term relationships. In addition to having significant market shares of the oilfield country tubular goods (OCTG) and the seamless steel pipe export markets, the Tenaris operating companies also hold large shares of their respective local markets. Consolidated sales and EBITDA are geographically diversified as the Tenaris companies generate cash from operations in North and South America, Europe and Asia. Tenaris' rating incorporates sovereign risks of some of the countries in which the company operates. These risks include the potential for higher cash flow volatility and the transfer and convertibility risks associated with these countries, Argentina in particular, which somewhat constrain the rating at the 'BBB' level.
Tenaris has successfully reorganized its subsidiaries such that they are now essentially wholly owned. In 2003, Tenaris completed the reorganization of its holdings in the seamless steel pipe sector by offering public shareholders of its three main operating subsidiaries, Tubos de Acerco de Mexico S.A. (TAMSA) in Mexico, Siderca S.A.I.C. (Siderca) in Argentina and Dalmine in Italy, to exchange their existing shares for shares of Tenaris. The corporate reorganization has resulted in some administrative synergies and allows the company to operate with a more efficient order allocation process and common commercial network.
Tenaris is majority-owned by the Techint Group, which operates worldwide in the steel, energy, engineering and construction sectors. Tenaris was incorporated in Luxembourg in 2001 to hold the group's steel tube manufacturing and distribution businesses. Through operating entities in eight countries in the Americas, Europe and Asia, Tenaris produces seamless and welded steel pipe products primarily for the oil and gas drilling and pipelines. Seamless steel pipe sales of 2.6 million tons generated about 80% of Tenaris' consolidated revenues of US$4.1 billion in 2004.
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