Fitch Ratings has affirmed
In addition, Fitch has affirmed Alupar's and its subsidiary Foz do
Alupar's ratings reflect its low business risk relative to its diversified portfolio of power transmission assets in
Key Rating Drivers
Low Business Risk: Alupar's credit profile benefits from the combination of its activities in energy transmission and generation, mainly in
In transmission, concessions' revenue (Annual Permitted Revenues, PAR) is generated through the availability of its assets, without demand risk and annually adjusted for inflation. This segment will remain the company's main business.
In the generation segment, long-term contracts for the sale of a large part of the assets' assured energy and the partial protection for hydrological risk also create an expectation of strong performance. The importance of this segment for the group's EBITDA, estimated at 18% for 2021, should remain at similar levels over the next few years.
Expected Leverage Reduction: Alupar's consolidated leverage should gradually decline and remain consistent with the current IDRs. Alupar should return to historical conservative credit ratios after punctual increase in the group's net leverage during the strong investment cycle in 2019-2021. During the LTM ended
Favorable Tariff Readjustments: High exposure to transmission concessions IGPM-indexed (about 50% of consolidated PAR) will strengthen the groups consolidated results in 2021 and 2022. PAR readjustment of 37% for IGPM-indexed concessions and 8% for IPCA-indexed concessions from
For 2022, the base case scenario for the rating expects an EBITDA of
Manageable Negative FCF: Alupar should have negative consolidated FCFs of
The additional PAR of
Manageable Construction Risk: Alupar's positive track record of developing and obtaining long-term financing for its new transmission and generation projects mitigates the risks associated with the construction phase. Pending the project finance structure of two transmission lines and of the generation projects is not a major concern. The group needs to raise
Alupar has three transmission projects and three energy generation plants under construction. Transmission lines will add 476 km and require
TNE Should Not Affect Ratings: The base case scenario for the rating does not include the development of Alupar's largest pre-operational project, the transmission line
Should Alupar obtain the approval to continue with the construction, it will require capex of
Subsidiary Rating Equalized: Fitch equalizes the National Scale ratings of Foz do Rio Claro and Alupar due to the strong legal, operational and strategic incentives between the subsidiary and the controlling shareholder. Alupar holds 100% of Foz do Rio Claro's shares and is the guarantor of the company's single debt, whose financial covenants are verified based on Alupar's consolidated figures.
Derivation Summary
Alupar's financial profile is stronger than Latin American peers
While its peers are located in countries with higher IDRs, Alupar's ratings are negatively affected by
Key Assumptions
Fitch's main assumptions of its 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;
Readjustments of 2021/2022 cycle PAR: IGPM-indexed concessions: +37% / IPCA-indexed concessions: +8%;
Generation scaling factor of 0.80 in 2022, 0.85 in 2023 and 0.93 in 2024;
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:
Positive rating action for the company's FC IDR would be associated to an upgrade on
Positive rating action for the company's LC IDR would be associated to improvements on
Upgrade not applicable to the National Scale rating as it is at the highest level.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action for the LC IDR would be associated to a deterioration in Alupar's consolidated financial profile, with net adjusted leverage above 3.5x and funds from operations net leverage above 4.0x, both on a sustainable basis;
A weaker Brazilian operating environment may result in a downgrade of the LC IDR;
A downgrade on
A two-notches downgrade on Alupar's LC IDR would lead to a downgrade on the National Scale rating.
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
Sound Liquidity Profile: Alupar group should continue to benefit from a high liquidity position and broad access to the banking and capital markets. On a consolidated basis, the group's cash position of
The holding company should 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
Issuer Profile
Alupar is a non-operational holding company that operates in the energy transmission and generation segments mainly in
Summary of Financial Adjustments
Net revenues and EBITDA net of construction revenues and cost.
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.
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