Fitch Ratings has affirmed
Fitch has also affirmed the Long-Term National Scale Rating at '
Alupar's ratings reflect its low business risk associated with the combination of its operations in the electric energy transmission and generation segments, as well as a positive asset base diversification, which dilutes operational risks. The transmission segment is characterized by high EBITDA margins and great predictability of operating cash generation. On the generation segment, Fitch expects the company to present robust performance and positively manage its exposure to the current hydrological risk.
The rating action also considers the reduction of the group's construction and financing risks in the development of its new transmission lines as the projects obtained most of the pending environment licensees and credit lines during 2019 and 2020, with start of operation of three projects in 2020. Based on the delivery of the projects and the associated revenue and cash generation, Alupar should return its credit metrics to levels consistent with the current IDRs. Fitch forecasts consolidated adjusted net leverage of 4.0x in 2021 and below 3.5x from 2022 on, after the expected peak at 4.7x in 2020 due to capex concentration.
The holding company Alupar also presents robust credit metrics and is in a position to appropriately meet its debt service obligations and forecast equity contributions to projects under development through current cash position, expected dividends to be received and proved financial flexibility. The new investments will offset the drop in revenues and operating cash generation from some older transmission line concessions that will occur in the coming years.
Alupar's FC IDR is constrained by
The Stable Outlook on the National Scale Rating is based on Fitch's view that the company will be able to strengthen its already diversified asset base while preserving a robust financial profile, compatible with companies in the industry in the same rating level. Fitch believes Alupar's robust cash position and high financial flexibility will support the group to manage the expected negative FCF, associated with the relevant investment cycle in the period 2020-2021.
KEY RATING DRIVERS
Low Business Risk: Alupar's ratings incorporate the group's low business risk associated with the combination of its activities in the transmission and generation of electricity. In transmission, concessions are based on long-term contracts and revenue is generated through the availability of its 24 operating assets, without demand risk and annually adjusted for inflation. The group also has adequate customer diversification and receivables structure that includes guarantees. Fitch considers positive the fact that this segment will continue to be the main business of the company. Fitch sees energy transmission as the lowest risk in the electric energy sector and it concentrates 65% Alupar's ongoing investments from 2021 to 2023.
In the generation segment, long-term contracts for the sale of a large part of the assured energy of the assets and the partial protection for hydrological risk also create an expectation of strong operational cash generation. According to Fitch's projections, the relevance of this segment in the group's EBITDA, estimated at 25% for 2021, will reduce after the conclusion of transmission lines under construction, mainly from 2022 on. Alupar is a medium player in this segment in
Strong Financial Profile: Fitch believes that consolidated financial metrics will be gradually consistent with the current IDRs if no new project is added. Considering the current portfolio of projects under development, Fitch estimates a return to the historical conservative credit ratios after punctual increase in the group's net leverage during the elevated investment cycle in 2019 and 2020 - with the associate increase in operating cash generation mainly from 2021 on. In the LTM ended on
Manageable Negative FCF: On a consolidated basis, Fitch expects Alupar to present negative FCF of
Positive Asset Recomposition: Fitch believes Alupar will be able to compensate expected revenue and EBITDA reductions coming from part of its current portfolio through its new projects. Concessions for transmission assets granted prior to 2006 include a 50%-PAR reduction once the concession completes 15 years of operation. Considering the company's proportional consolidated PAR of
Reduced Construction Risk: Alupar made relevant progress in mitigating the risks associated with the development of its transmission projects during 2019 and 2020. Out of the nine new projects in the current investment cycle, five of them started its operations, being three in 2020 and two in 2019. The company already concluded 85% of the total investments in these nine projects, and the remaining
DERIVATION SUMMARY
Alupar's financial profile is stronger than Latin American peers
KEY ASSUMPTIONS
The main assumptions of Fitch's base scenario for the issuer include:
RAPs adjusted annually by inflation, with a 50% reduction for transmission assets whose concession agreement contemplates this movement after the 15th year of operation;
Generation scaling factor of 0.81 from 2021 to 2023;
Operating expenses adjusted by inflation;
Distribution of dividends equivalent to 50% of net income;
Total investments of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The Rating Outlook could stabilize as result of a revision to
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Deterioration in Alupar's consolidated financial profile, with net leverage above 3.5x on a sustainable basis;
Funds from operations (FFO) adjusted net leverage above 4.0x on a sustainable basis;
Total debt/dividends received over 3.0x and net debt/dividends received over 2.0x at the holding level;
Investments in projects with risks significantly higher than existing ones and weak financial structures;
A more challenging environment in
Negative rating actions on
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity Profile: Fitch believes that Alupar group will continue to benefit from a high liquidity position and broad access to the banking and capital markets, in order to adequately finance the expected negative FCF in 2021. On a consolidated basis, the group's cash position of
The agency expects the holding company to use its significant cash reserves to supply the needs of its projects, maintaining a debt maturity schedule compatible with its cash flow expectations. As of
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Rating ActionsENTITY/DEBT RATING PRIOR
Alupar Investimento S.A. LT IDR BB Affirmed BB
LC LT IDR BBB- Affirmed BBB-
Natl LTAAA (bra) AffirmedAAA (bra)
senior unsecured
Natl LTAAA (bra) AffirmedAAA (bra)
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Additional information is available on www.fitchratings.com
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