USA: Credit rating agency downgrading Cargill outlook

Fitch - a credit rating agency, offered a rare glimpse into the finances of Cargill, the world's largest agricultural company, revising the group's long-term debt outlook to negative from stable on concern that higher capital expenditure will slow debt reduction, Financial Times reported on April 23.

Cargill was the largest privately held company in the US until it was overtaken by Koch Industries through its recent purchase of Georgia-Pacific, the world's biggest tissue maker. Fitch said Cargill's consolidated debt as of February was $14.8bn.

Cargill which had revenues last year of $71bn, has been shifting from relying mostly on grain processing into higher margin businesses such as developing ingredients for food groups. It has a division producing plant sterols, cholesterol-reducing plant ingredients that go into health bars made by General Mills. In 2002, Cargill bought Cerestar, a European maker of starches and sweeteners, for about $1bn.

Last month, European antitrust authorities gave approval for Cargill's acquisition of the food ingredients business of Degussa, a German chemical group, for $685m including debt. Fitch, which has rated Cargill since 2003, said on Friday the Degussa purchase and higher capital expenditures would "likely slow debt reduction in the near term".

Fitch stated: "The expansion in capital expenditures from $731m in 2002 to almost $1.8bn for the latest 12 months has reduced free cash flow to below $300m."

Lisa Clemens, a Cargill spokeswoman, said the company was not surprised by Fitch's move, which left the long-term rating unchanged at A+. She said: "Over the past five years if you look at our sales, earnings and net worth our financial performance has been strengthening with our strategy. Cash flow has outpaced capital expenditure by more than historical averages over the last three years."

In this month, Cargill reported $370m in third-quarter net earnings, up from $366m previously. Three of Cargill's five business segments risk management and financial; grain origination and processing; and food ingredients beat last year's performance.

Nevertheless, Fitch said it was "concerned about the sustainability of the large and growing earnings stream" coming from the risk management and financial division (RM&F).Fitch said net earnings from RM&F contributed about 30 per cent to 2005 earnings and were "likely to contribute an even greater amount in 2006".

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