Fitch Affirms Gas Natural on CGE Acquisition

jueves 16 de octubre de 2014 07:22 GYT
 

(The following statement was released by the rating agency) LONDON/WARSAW/BARCELONA, October 16 (Fitch) Fitch Ratings has affirmed Gas Natural SDG, S.A.'s Long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook following the company's announcement of an acquisition of Chile's Compania General de Electricidad SA (CGE, AA-(cl)/Stable) for USD3.3bn (EUR2.6bn). A full list of rating actions is provided at the end of this rating action commentary. The rating action reflects our view that the CGE acquisition will have a moderately positive impact on Gas Natural's business profile, due to increased geographical diversification as well as our expectation of rapid de-leveraging following the acquisition. We expect that the acquisition will temporarily weaken credit ratios to above our negative rating guideline in the next 12 months (assuming an acquisition of 100% of shares) but we expect funds from operations (FFO) adjusted net leverage to return to a level commensurate with the rating (below 4.0x) in 2016-2017, due to deleveraging in line with the company's strategy. KEY RATING DRIVERS CGE Acquisition On 12 October, Gas Natural agreed to acquire 54% of CGE from a group of controlling stakeholders and the company will make a share tender offer for the remaining stake. The entire 100% stake is valued at USD3.3bn (EUR2.6bn) based on the offered price per share. In our rating case we assumed that Gas Natural will purchase 100% of CGE. In 2013 CGE's EBITDA was EUR0.6bn and net debt-to-adjusted EBITDA stood at 3.3x. Moderately Stronger Business Profile We believe that the CGE acquisition will have a moderately positive impact on Gas Natural's business profile, due to increased geographical diversification, including Chile (A+/Stable), one of the highest-rated Latam countries with a predictable regulatory regime. As a result of the acquisition Gas Natural will change its mix of Spanish versus international business to 49:51 from 56:44, reducing the company's exposure to the Spanish market, which has been subject to unfavourable regulatory changes in the past few years. We consider CGE a good strategic fit for Gas Natural due to its focus on natural gas distribution and electricity distribution and transmission, the highly regulated character of its revenues and leading market position in Chile. Fitch expects a moderate reduction in the profitability of CGE's natural gas distribution business due to planned changes to regulations. Temporarily Weaker Credit Metrics We expect that the acquisition will temporarily weaken credit ratios to above our negative rating guideline of FFO net adjusted leverage of close to or above 4x in the next 12 months, assuming an acquisition of 100% of shares. This will eliminate rating headroom for the company. However, we project FFO adjusted net leverage to return to the level commensurate with the rating (below 4.0x) in 2016 and to improve further in 2017, due to deleveraging in line with the company's strategy. Regulatory Cuts in Electricity A series of regulatory changes in the Spanish electricity sector since 2012 have reduced Gas Natural's annual EBITDA by about EUR0.6bn, according to the company's estimates. Fitch expects other reforms (ie, capacity payments and mothballing) to affect future earnings to a lesser extent. Legal tail risk remains as the new measures may be tested in courts. Gas Networks Less Exposed Recent changes to the gas sector regulatory framework in Spain are expected to prevent further growth of the gas tariff deficit (TD) and introduce mechanisms to eliminate the outstanding TD in the system (around EUR0.4bn at end-2013). The negative impact of the regulatory changes on Gas Natural's EBITDA is EUR45m in 2014 and around EUR90m per year thereafter, according to Fitch's estimates. The regulatory cut is much smaller than that seen in the Spanish electricity business as the cumulative gas TD is substantially lower than the electricity TD. Balanced Business Profile The ratings are supported by Gas Natural's integrated strong business profile in both gas and electricity. A significant portion of the company's earnings (52% of 1H14 EBITDA) are regulated and mainly derived from its gas and electricity distribution activities in Spain and Latam, providing cash flow visibility. This is despite the 2012-2014 regulatory changes in Spain that reduced regulated earnings. The CGE acquisition will slightly increase the share of regulated EBITDA. In addition, about 5% of 1H14 EBITDA was quasi-regulated, comprising mostly long-term contracted generation in Latam (PPAs) and generation in the special regime in Spain. RATING SENSITIVITIES Positive: Future developments that could lead to positive rating actions include: - Further reduction of FFO adjusted net leverage to around 3.0x or below on a sustained basis and FFO interest coverage around 5.5x or above (FY13: 5.2x) on a sustained basis - Improvement in the operating and regulatory environment Negative: Future developments that could lead to a negative rating action include: - FFO adjusted net leverage close to or above 4.0x and FFO interest coverage below 4.5x on a sustained basis - Substantial deterioration of the operating environment or further government measures that substantially reduce cash flows LIQUIDITY AND DEBT STRUCTURE Gas Natural's liquidity position remains strong. As of 30 June 2014, Gas Natural had cash and cash equivalents of EUR5.5bn plus available committed credit facilities of EUR7.1bn, of which EUR6.2bn are maturing beyond 2015. This is sufficient to fund the CGE acquisition and meet debt maturities of EUR5.6bn over the next 24 months. We expect Gas Natural to generate positive free cash flow in 2014-2016. FULL LIST OF RATINGS: Gas Natural SDG, S.A. Long-term IDR: affirmed at 'BBB+', Outlook Stable Short- term IDR: affirmed at 'F2' Gas Natural Fenosa Finance BV Senior unsecured rating: affirmed at 'BBB+' Euro commercial paper programme rating: affirmed at 'F2' Gas Natural Capital Markets, S.A. Senior unsecured rating: affirmed at 'BBB+' Union Fenosa Financial Services USA LLC Subordinated debt rating: affirmed at 'BB+' Union Fenosa Preferentes, S.A. Subordinated debt rating: affirmed at 'BB' Contact: Principal Analyst Pilar Auguets Director +34 93 467 87 47 Supervisory Analyst Arkadiusz Wicik Senior Director +48 22 338 6286 Fitch Polska S.A. Krolewska 16 00-103 Warsaw Committee Chair Angelina Valavina Senior Director +44 20 3530 1314 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 28 May 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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