Befesa S.A.

The stable outlook reflects Befesa's ability to withstand the market volatility without a material increase in debt. Over the medium term, we expect further support for the rating to come from Befesa's ability to expand its portfolio outside Europe while increasing its earnings and maintaining a supportive financial policy, notably its long-term hedge book, dividend policy, and leverage objectives. We view S&P Global Ratings-adjusted debt to EBITDA of 3x or better under normal industry conditions as commensurate with the 'BB' rating, given Befesa is undergoing an extensive growth phase. We would consider adjusted debt to EBITDA of 3x-4x as commensurate with the rating under less favorable industry conditions, or, alternatively, if Befesa completes its projects at the end of 2021

...The steel industry's gradual recovery following the decline caused by the COVID-19 pandemic should result in stronger results for Befesa S.A. in the second half of the year and in 2021. In S&P Global Ratings' view, Befesa entered the recent global downturn from a relatively comfortable position, with some headroom under the rating that enabled it to continue to pursue its long-term objectives and demonstrate its commitment to its previously stated financial policies. However, the pandemic has had a material impact on the company's ability to run its operations, with Befesa suffering from a drop in volumes in the first half of the year and unfavorable zinc prices due to shutdowns of steel facilities in many of its markets, mainly in Europe (about 70% of its capacity). This has resulted in EBITDA of 22 million in the second quarter of the year compared with 34 million in the first quarter and 37 million in second-quarter 2019. Given the recovery of the demand for steel in the second half...

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