The upgrades reflect the improvement of IMPSA’s long-term business fundamentals due to the development of its operations in Brazil and the sustained global demand for hydro and wind power generating equipment.

Fitch Ratings-Buenos Aires-08 June 2010: Fitch Ratings has upgraded Industrias Metalurgicas Pescarmona’s (IMPSA) Issuer Default Ratings (IDR) and debt ratings as follows:

• Foreign currency IDR to “B+” from “B”;
• Local currency IDR to “B+” from “B”;
• US$ 225 million senior unsecured notes due 2014 to “B+/RR4” from “B/RR4”;
• National Scale IDR to “AA-(arg)” from “A(arg)”.

The Rating Outlook is Stable

The upgrades reflect the improvement of IMPSA’s long-term business fundamentals due to the development of its operations in Brazil and the sustained global demand for hydro and wind power generating equipment. The ratings also incorporate IMPSA’s sizeable backlog, which provides some certainty to the company’s cash generation over the medium term. Balanced against these strengths are the company’s high leverage, aggressive capital expenditure program and its dependence on a few large projects in developing countries. A sudden downturn in its key markets would negatively impact IMPSA’s ability to develop new projects.

Fitch expects revenues and EBITDA from Brazil to represent more than 65% of IMPSA’s consolidated figures from fiscal 2011 onwards. The growth of the company’s business in Brazil has reduced IMPSA’s exposure to more volatile markets such as Argentina and has increased the company’s access to multiple funding sources. This has reduced concerns about IMPSA’s need to finance its working capital needs in Argentina should that market deteriorate and has resulted in the company’s foreign currency ratings exceeding Fitch’s “B” country ceiling rating for Argentina.

IMPSA had $576 million of total debt and $62 million of cash and marketable securities as of Jan. 31, 2010. Of the company’s total debt, $138 million was structured without legal recourse to the company as project finance debt for a wind farm in Brazil (Ceara). This debt was funded through a 12-year loan from Brazil’s development bank, Caixa Economica Federal. During the fiscal year ended Jan. 31, 2010, the company generated $102 million of EBITDA, as defined by Fitch as funds generated by the hydro and wind divisions plus dividends associated with operating wind farms.

Fitch expects IMPSA’s EBITDA to grow to $160 million during the fiscal year ending Jan. 31, 2011. The company’s free cash flow (FCF) is anticipated to remain negative during 2010 due to growth, and cash deficits are expected to be mostly financed with non-recourse project financing.

For the fiscal year ended in January 2011, Fitch expects IMPSA’s total debt with recourse to increase to approximately $450 million from $438 million. Nevertheless, the rapid growth of EBITDA should lower the company’s leverage ratio, measured as total debt/EBITDA, to 3.5 times (x) from 4.3x as of January 2010. IMPSA’s ultimate shareholder has recently announced several changes in its corporate structure.

Venti (Luxemburg), a recently created holding company of the Pescarmona family, has filed to issue Brazilian Depositary Receipts (BDRs) at the Comissao de Valores Mobiliarios (CVM) in Brazil. If the IPO succeeds, IMPSA’s and Corporacion IMPSA’s (current shareholder) shares will be transferred to Venti. Fitch’s ratings do not take into consideration the impact of the IPO as its timing and results are uncertain. Should proceeds from the IPO be used to materially reduce IMPSA’s leverage, the ratings could be positively affected.

Recourse leverage higher than anticipated by Fitch, any material performance problems that could threaten future projects and cash flow, or any failure to comply with the terms for the operation of the wind farms (for which long-term purchase power agreements (PPAs) have been signed with Eletrobras and the CCEE), could potentially lead to a negative rating action or Outlook by Fitch.

The Percarmona family owns 100% of Industrias Metalurgicas Percarmona S.A.I.C. y F (IMPSA) either directly or through Corporacion IMPSA S.A.

IMPSA is engaged in providing integrated solutions for renewable energy, including hydroelectric and wind power projects and associated equipment. For the fiscal year ended Jan. 31, 2010, U.S.-dollar denominated sales accounted for approximately 90% of its total revenue. At that date, IMPSA’s backlog was $2.16 billion, compared to $1.5 billion at May 2009. Given the long-term production cycle of IMPSA’s developments, usually in the range of 30 months, this backlog level provides some certainty to the company’s cash generation in the medium term.

Applicable criteria available on Fitch’s website at www.fitchratings.com: The primary methodology used in this rating action is Corporate Rating Methodology, dated Nov. 24 2009.

Fitch has also used the Corporate Manual presented at the Comision Nacional de Valores (CNV).

Additional information is available at www.fitchratings.com.