Corporates. Gas Natural de Lima y Callao S.A. Calidda. Natural Gas & Propane / Peru. Full Rating Report

Transcription

1 Natural Gas & Propane / Peru Gas Natural de Lima y Callao S.A. Calidda Full Rating Report Ratings Foreign Currency Foreign-Currency Long-Term IDR BBB- Local Currency Local-Currency Long-Term IDR BBB- Senior Unsecured Long-Term Rating BBB- Outlooks Foreign-Currency Long-Term Stable Rating Local-Currency Long-Term Rating Stable Financial Data Gas Natural de Lima y Callao S.A. USD thousands Revenue 37,53 34,485 EBITDA 64,674 59,618 EBITDA/Revenues Cash flow from operations 45,388 28,142 Total debt 196, ,229 Total debt/ebitda (x) EBITDA/Interest Expense (x) Related Research 213 Latin America Sovereign Outlook (December 212) Analysts Lucas Aristizabal Lucas.aristizabal@fitchratings.com Josseline Jenssen Josseline.jenssen@fitchratings.com Key Rating Drivers Strong Market Position: Calidda is the largest natural gas (NG) distribution company in Peru. Calidda was granted a 33-year concession starting 2 to exclusively distribute NG in Lima and Callao, a metropolitan area with approximately 1.4 million people and where one third of the country s population resides. The concession may be renewed upon request from Calidda after 233 in 1-year increments and up to 26. As of today, Calidda has complied with all the commitments established in the concession. Highly Strategic Industry for Peru: NG is the second most demanded power source in Peru after hydroelectric energy. Calidda distributes the NG used to generate 97% of the country s thermoelectric generation. The government of Peru, through Law 1999, declared the development of NG infrastructure of national interest and has been promoting the use of gas at large scale by establishing a goal of connecting 5 thousand households by 216. As of December 212, there were a few more than 1 thousand clients. High Demand Growth Potential: Fitch expected Peru s GDP to grow by 6.2% and 6.3% in 213 and 14, respectively. The metropolitan area of Lima and Callao represents 44% of Peru s GDP (estimated at USD18 billion) and is the largest market for NG in Peru in terms of clients, industrial activity and power generation. The potential market for residential NG connections is estimated at approximately 1.4 million households. Predicable and Stable Cash Flow with Diversified Client Base: Calidda s regulated clients (such as natural gas for vehicles-ngv, commercial and residential) provide the company with an stable and predictable cash flow generation. The company s regulated tariff scheme, which assures cost recovery and adequate return over total capital investments, further supports cash flow predictability. Additionally, 48% of distribution revenues come from firm take-or-pay contracts with an average life of 19 years with top tier power generators and large industries companies. Leverage to Increase: On a Pro-forma basis and after given effect to the transaction, leverage is expected to be around 4.9 times (x) using 212 EBITDA. Fitch expects Calidda to use the incremental debt to finance its Capex and for leverage to decrease to a level more in line with the assigned rating in the short to medium term. For 213, Calidda s leverage is expected to decrease to approximately 4.5(x) and to range between 3.5(x) and 3.(x) thereafter. Rating Sensitivities Positive Rating Drivers: Considerations for a positive rating action would be a significant and sustained deleveraging along with the growth and consolidation of the regulated supply and demand (NGV, residential and commercial segments) including higher penetration levels. Negative Rating Drivers: A negative rating action could be taken if leverage increased and remained at a level of more than 3.5(x) for a prolonged period of time either due to operational deterioration or unexpectedly large dividend distributions. Material changes in the concession agreement, tariff scheme and applicable regulations could also result in negative rating actions. 1

2 Financial Overview Applicable Criteria Corporate Rating Methodology (August 212) Liquidity and Debt Structure As of December 212, total debt was USD197 million including USD 47 million shareholders subordinated debt. The company expects to use the proceeds from the proposed issuance to repay this debt and to extend debt average life from three to 1 years and remove restricted covenants and over collateralization, i.e. concession mortgage, revenues trustee, shares pledge and debt service reserve account. Additionally, liquidity would be strengthened by Calidda s availability of uncommitted credit lines from banks. Calidda s policy is to maintain at least USD3 million in cash. Calidda s Gross Debt to EBITDA leverage will increase to 4.9(x) on a pro-forma basis after given effect to the transaction and using 212 EBITDA. Fitch expects leverage to decrease overtime and to range between around 3.5(x) and 3.(x) in the medium to long term as EBITDA increases. The deleverage speed would depend on Calidda s ability in promoting and capturing the potential demand. Nominal debt reduction is not anticipated, since FCF is expected to remain negative in the next years due to Capex financing. Debt Maturities and Liquidity at 12/31/212 End Debt Maturities , After ,212 Cash and Cash Equivalents 56,912 Undrawn Committed Facilities Total Debt and Leverage Total Debt (LHS) Debt/EBITDA (RHS) 2, 15, 1, 5, 28 (x) Cash Flow Analysis Revenues is expected to grow by approximately 2% during the next two years as a result of higher installation services and new gas fired power generators (Fenix Power & Termochilca), which may begin operations in April and July 213, respectively. Fitch expects Calidda s EBITDA for 213 to be around USD7 million, up from USD 65 million in 212, while the new tariff allocation would also bolster EBITDA in 214. FCF would remain negative due to large Capex. Around USD9MM Capex has already been invested for an additional 4km main grid, which will increase the minimum capacity from 255 MMCFD to 42MMCFD. Capex would be around USD12 MM in 213 and USD1 MM in 214 mainly directed to the expansion of the secondary grid network. To support the company s growth, shareholders injected USD6MM as equity between November 212 and February 213. Like most growing companies, Calidda has been focused on reinvesting its cash flow generation. As a result of this, the company has not distributed dividends to its shareholders. Calidda expects to pay dividends starting in 216 of around USD25 MM depending on available cash after funding future Capex and maintaining the historic leverage. 2

3 CFO and Cash Use Cash Flow from Operations Capex Dividends/Net Share Repurchases 1, 8, 6, 4, 2, 28 Source: Company data, Fitch. 3

4 Peer Group Issuer BBB- Promigas S.A. E.S.P. Transportadora de Gas Internacional S.A. ESP (TGI) Country Colombia Colombia Peer and Sector Analysis Peer Group Analysis Gas Natural de Lima y Callao S.A. Promigas S.A. E.S.P. Transportadora de Gas Internacional S.A. ESP (TGI) (USD millions) 12/31/212 12/31/21 9/3/212 Long-term IDR BBB- BBB- Outlook Rating Outlook Stable Rating Outlook Stable Issuer Rating History Date LT IDR (FC) Outlook/ Watch 3/14/13 BBB- Stable ''RW" denotes Rating Watch Financial Statistics Revenue YoY Revenue Growth 65.9 (99.9) - EBITDA EBITDA Margin Free Cash Flow (42) 22 (121) Total Adjusted Debt Cash and Cash Equivalents Funds Flow from Operations Capex (88) - - Net Equity Proceeds 35 Credit Metrics (x) EBITDA/Gross Interest Coverage FFO Adjusted Leverage Adjusted Debt/EBITDAR FFO Interest Coverage Capex/Revenues (.24) - -) FCF/Total Debt with Equity Credit (.22).4 (.16) YoY Year over year. Organizational Structure Calidda is part of Empresa de Energia de Bogota-EEB (6% ownership), a leading energy holding company with interests across the electricity and natural gas sectors in Colombia, Peru and Guatemala. The remaining 4% is owned by Promigas, one of the largest natural gas transportation and distribution companies in Colombia with international presence in Panama, Peru and Costa Rica. Both companies Issuer Default Ratings (IDR) are 'BBB-'/Stable Outlook rated by Fitch. Organizational Structure Gas Natural de Lima y Callao S.A. (Calidda) (As of December 31, 212) EEB Perú Holdings Ltd. 6% Promigas 4% CALIDDA Revenues: USD 37 MM EBITDA: USD 65 MM Total Debt: USD 197 MM TD/EBITDA: 3. x TND/EBITDA: 2.2 x TD Total Debt Source: Calidda TND Total Net Debt 4

5 Company Profile Calidda was granted a 33-year build, own, operate and transfer (BOOT) concession starting 2 to exclusively distribute natural gas in Lima and Callao. The BOOT concession may be renewed upon request from Calidda after 233 in 1 years increment and up to 26. As of today, Calidda has complied with all the commitments established in the BOOT Agreement. Calidda will increase its main grid capacity from 255 MMCFD to 42 MMCFD in 213-Q1 and has 2,455 km of natural gas pipelines (made of steel or polyethylene) in Lima & Callao. Service area under concession covers 21,714 square miles and 1.4 million people. Peru s economically active population is 1.7 million, 34% of which is concentrated in Lima & Callao. Of the 49 Lima districts, Calidda actually serves residential customers in 13, and industrial, NGV and power generators in 34 districts. As of December 212, Calidda served approximately 13,723 clients and the company had an estimated market penetration of around 43%. In 212, transported volumes were mainly explained by power generators (69%) while revenues are more diversified in power generators (34%), installation services mainly for commercial and residential (26%), industrial companies (19%) and natural gas for vehicles-ngv (15%). In order to serve the regulated demand (28.2% of total volumes), Calidda needs to negotiate its gas supply contract. In 24, Calidda entered into a master supply contract with the Camisea Consortium (mostly interruptible capacity since 215 from block 88) with an expiration date in December 216. This is mitigated by the fact that Pluspetrol, the consortium operator, is obliged to prioritize NG supply to cover local demand according to its concession agreement. Calidda is currently in negotiations with other producers (Petrobras / Repsol B57) to diversify NG supply and improve commercial agreement terms, including lengthening the contract term and additional firm capacity. The company expects that new clients per year would increase at a pace higher than previously, estimated at 6, in 213 and 85, in 214 versus 4, in 212. Penetration is expected to gradually improve to up to 57% in the next two years. This expected demand growth is supported by the government initiative to provide incentives to increase gas usage through promotional discounts as well as by its commercial strategy to increase access in new districts through more aggressive CapEx in its secondary grid network.. Also, NG s competitive advantage versus alternative fuel sources should boost demand for NG. The regulator entity OSINERGMIN fixes Calidda s tariff every 4 years. The single tariff scheme recognizes Calidda s future efficient investments and costs applying an annual discount rate of 12%. Tariffs are in US dollars and are periodically adjusted considering variations in exchange rate, USPPI, Steel Price Index, Polyethylene Price Index and Peruvian Wholesale. The next four-year tariff will take place in 214 and an increase is expected due to more estimated Capex. Business Trends 5

6 Revenue Dynamics Revenue (LHS) ($ thousands) Revenue Growth YoY (RHS) EBITDA Dynamics EBIT DA (LHS) EBIT DA Margin (RHS) ($ thousands)

7 Definitions Leverage: Gross debt plus lease adjustment minus equity credit for hybrid instruments plus preferred stock divided by FFO plus gross interest paid plus preferred dividends plus rental expense Interest Cover: FFO plus gross interest paid plus preferred dividends divided by gross interest paid plus preferred dividends FCF/Revenue: FCF after dividends divided by revenue FFO/Debt: FFO divided by gross debt plus lease adjustment minus equity credit for hybrid instruments plus preferred stock Fitch s expectations are based on the agency s internally produced, conservative rating case forecasts. They do not represent the forecasts of rated issuers individually or in aggregate Gas Natural de Lima y Callao S.A. Power & Utility US Median BBB US Medians Key Metrics Leverage: Total Adj. Debt/Op. EBITDAR Int. Coverage: Op EBITDA/Gross Int. Exp. 5. (X) 1. (X) FCF/Revenues FFO/Debt Capex/CFO Source: Company data, Fitch.. 7

8 Financial Summary Gas Natural de Lima y Callao S.A (USD in thousands) Profitability Operating EBITDA 64,674 59,618 28,348 19,289 16,841 Operating EBITDAR 64,674 59,618 28,348 19,289 16,841 Operating EBITDA Margin Operating EBITDAR Margin FFO Return on Adjusted Capital Free Cash Flow Margin (11.5) (18.3) (17.3) (39.9) (16.3) Return on Average Equity Coverage FFO Interest Coverage Operating EBITDA/Interest Expense Operating EBITDAR/Interest Expense + Rents Operating EBITDA/Debt Service Coverage Operating EBITDAR/Debt Service Coverage FFO Fixed Charge Coverage FCF Debt Service Coverage (.9) (2.) (3.5) (3.) (.1) (FCF + Cash and Marketable Securities)/Debt Service Coverage.8 (.7) (.2) (1.8) (.) Cash Flow from Operations/Capital Expenditures Capital Structure and Leverage (X) FFO Adjusted Leverage Total Debt with Equity Credit/Operating EBITDA Total Net Debt with Equity Credit/Operating EBITDA Total Adjusted Debt/Operating EBITDAR Total Adjusted Net Debt/Operating EBITDAR Implied Cost of Funds Secured Debt/Total Debt Short-Term Debt/Total Debt Balance Sheet Total Assets 492,44 383,14 289,44 225, ,642 Cash and Marketable Securities 56,912 3,797 24,15 16,275 6,128 Short-Term Debt 21,232 13, ,4 53,94 Long-Term Debt 175, , ,631 66,142 23,148 Total Debt 196, , ,873 74,542 76,242 Equity Credit Total Debt with Equity Credit 196, , ,873 74,542 76,242 Off-Balance Sheet Debt Total Adjusted Debt with Equity Credit 196, , ,873 74,542 76,242 Total Equity 22,488 14, ,179 15,64 45,752 Total Adjusted Capital 398,932 37, ,52 18, ,994 Cash Flow Funds from Operations 44,362 48,261 29,479 9,95 5,864 Change in Operating Working Capital 1,26 (2,119) (23,389) (3,565) 1,11 Cash Flow from Operations 45,388 28,142 6,9 6,385 6,974 Total Non-Operating/Non-Recurring Cash Flow Capital Expenditures (87,88) (83,824) (38,56) (5,577) (21,113) Dividends Free Cash Flow (42,492) (55,682) (32,47) (44,192) (14,139) Net Acquisitions and Divestitures - 6 Other Investments, Net Net Debt Proceeds 25,724 59,413 38,718 3,836 4,951 Net Equity Proceeds 35, 5, Other Financing, Net Total Change in Cash 18,232 3,731 6,248 9,74 (9,188) Income Statement Net Revenues 37,53 34, ,241 11,755 86,545 Revenue Growth Operating EBIT 48,36 45,432 19,997 15,546 11,996 Gross Interest Expense 11,639 9,575 7,91 4,792 6,22 Rental Expense Net Income 26,952 26,149 8,41 8,172 2,867 Source: Company reports. 8

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