Fitch has also affirmed Promigas' outstanding debt ratings as follows:
Promigas' ratings are underpinned by the company's strong competitive position in the natural gas transportation, distribution and trading sector and by the regulated nature of its businesses. These factors result in stable and predictable cash flows for the company. Promigas and its subsidiaries operate in regulated businesses characterized by moderate exposure to legal and regulatory risks. The rating considers the company's adequate liquidity position and manageable debt maturity profile, and the structural subordination of Promigas' debt to its subsidiaries.
The ratings also incorporate the increase in financial leverage both at the parent and subsidiary level in recent years, and the expectation that Promigas' consolidated leverage, both at the parent and subsidiary level, will be sustained at the 3.5x to 4.0x total debt / adjusted EBITDA (including dividends) level on recurring basis. Fitch's forecast incorporates expectations for a robust capital expenditure program during the next four years, leading to leverage possibly remaining at the high-end of the guided range during this period with eventual leverage declining afterwards. Promigas' rating stability depends on funding free cash flow deficit with a balanced mix of debt and equity that could result in improved leverage metrics.
KEY RATING DRIVERS
Strong Competitive Position
Promigas enjoys a strong market position as it is one of
Stable Operational Cash Flows
Promigas operates in a regulated business thereby benefiting from stable and predictable profitability and cash flow generation. In addition, the company possesses a diversified revenue base. In 2013, approximately 80% of revenues and 55% of EBITDA was derived from its gas and energy distribution companies, which operate in mature markets with regulated tariffs and low exposure to economic cycles and elastic demand. The remaining 20% of total revenues and 45% of EBITDA originated from transportation services, which also benefit from regulated tariffs. Contracts in this segment typically have maturities between one to five years, with a fixed/variable ratio of 75/25, which limits exposure to volumetric risks.
Adequate Liquidity Maintained
Promigas has maintained an adequate liquidity position supported by its favorable amortization schedule. As of year-end 2013, the company held a cash balance of
Fitch expects Promigas and its subsidiaries to continue with a demanding dividend policy. In 2013, dividends distributed by Promigas were
Moderate Regulatory and Market Exposure
The regulatory framework in
Promigas could have some exposition to supply risk as production of its main natural gas source has begun to decline. With the construction of the LNG plant the company will have an additional option to inject imported gas to the transportation system. The current reserves of natural gas are sufficient to meet demand in
Elevated Capital Spending Program
Promigas plans to significantly increase its capital investment program during the next four years. Capital expenditures for 2014 to 2017 are estimated to total approximately
Fitch considers the construction of the LNG facility as strategically important for Promigas, as it will provide an additional gas supply source for the thermal generators in the north region of
Leverage Expected to Rise Near-Term
Positively, total debt to EBITDA levels has recently improved, with leverage of 3.7x registered in 2013 versus 4.1x at the end of 2012. For 2013, consolidated debt was
The ratings consider a rise in Promigas' individual and consolidated debt attributed to increased projected capital investments and a continuation of an aggressive dividend policy. Given cash deficits over the next four years, Fitch believes the company will require additional debt issuances totaling
The ratings incorporate the expectation that Promigas' consolidated leverage will remain in the range of near 3.5x to 4.0x total debt/EBITDA on a recurring basis. Additional significant investments that do not involve financing via an equity component and/or are followed by significant reductions in dividend outflows could trigger a downgrade to the current rating. In addition, investments with lower than expected returns could be viewed negatively.
Given elevated capex expectations over the next four years, a positive rating action is not envisioned.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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