Fitch affirms Empresas Copec's IDRs at BBB+, rating outlook stable
January 30, 2012
– Fitch Ratings affirms Empresas Copec S.A.'s Issuer Default Ratings (IDRs) and debt ratings as follows:
--FC and LC IDR at 'BBB+';
--Senior unsecured bond line No. 623 and bond programs registered under the line, at 'AA(cl)';
--Senior unsecured bond line No. 624 and bond programs registered under the line, at 'AA(cl)';
--Long-Term National Scale at 'AA (cl)';
--Equity Rating at 'Level 1'.
The Rating Outlook is Stable.
Empresas Copec's ratings reflect the strong business positions and sound credit profile of its main operating subsidiaries Celulosa Arauco y Constitucion S.A. (Arauco, rated 'BBB+' and 'AA(cl)' by Fitch), Compania de Petroleos de Chile S.A. (Copec) and Abastecedora de Combustibles S.A. (Abastible). The company also participates in natural gas distribution, energy generation and the mining industry through minority investments in several companies and joint ventures.
The company's recent financial performance was strong. During the lastest-12-month (LTM) period ending Sept. 30, 2011, Empresas Copec generated USD2.0 billion of consolidated EBITDA. This compares favorably with USD4.9 billion of consolidated total debt and USD1.1 billion of cash and marketable securities, resulting in a net debt-to-EBITDA ratio of 1.8 times (x) and a total debt-to-EBITDA ratio of 2.4x. These ratios are comparable with similar ratios of 1.7x and 2.7x during 2010.
Empresas Copec, the holding company, services its debt maturities and interest expenses with interest income or dividends it receives from its subsidiaries Copec and Abastible. Only USD355 million of the company's consolidated debt of USD 4.9 billion is at the holding company level. This debt corresponds with two bond issuances in the Chilean market. The first issuance was a UF 7 million, 21-year-bullet maturity bond was placed in the local market in 2009 and was used to finance the Terpel acquisition. The second issuance was a UF 1.3 million, 10-year bond placed at the end of 2011 that was used to finance the acquisition of Inversiones Nordeste (IN). IN is a leading LPG distributor in Colombia, with 34% market share and 200,000 tons annual sales.
Empresas Copec benefits from dividends received from its strong subsidiaries. During 2011, Empresas Copec received USD546 million of dividends, an increase from USD410 million of dividends received during 2010. Arauco, the second largest market pulp company in the world, accounted for USD268 million of the company's dividends. Copec, the leading distributor of liquid fuel in Chile, provided USD170 million. Abastible, an important LPG distributor in Chile, accounted for USD53 million. Metrogas, a natural gas distributor in the Metropolitan Region, contributed with USD49 million of dividends.
During 2012, Empresas Copec should receive dividends of about USD350 million. The decline in dividends reflects softer market conditions in the forestry industry and a decrease in Copec's dividend policy for the year. Copec's new dividend policy should strengthen its capital structure, which was weakened to a degree by its recent indirect acquisition of a large stake in Terpel, a leading fuel distributor in Colombia.
On a consolidated basis, Empresas Copec should exhibit a solid operating profile during 2011, with Fitch projections indicating approximately USD2 billion in consolidated EBITDA, up from USD 1.8 billion for 2010. Arauco's Ebitda should be about USD1.3 billion, which is slightly lower than 2010 due to a softening of global pulp prices during the second half of the year. Copec, in turn, should benefit from one year of consolidation of Terpel Colombia, and should have a consolidated EBITDA of about USD550 million. At the end of 2011 Empresas Copec should have about USD 5.1 billion total debt and have a net debt-to-EBITDA ratio of about 2.0x.
For 2012 growth prospects for Arauco are stable due to softening pulp markets. For 2013 the company should add nearly 650,000 pulp tons after the start of construction of a new 1.3 million tons-per-year pulp mill in Uruguay through a 50/50 joint venture with Stora Enso. The total investment for this project should amount to USD1.9 billion. These investments include a port and a co-generation facility. Construction started during 2011 and operations should start by mid 2013. The mill has a forest base of 254,000 hectares of land. The financing of the project will be through a Project Finance structure, with 70-to-30 debt-to-equity ratio. For this purpose on September Montes del Plata closed a US$ 1.3 billion loan agreement, of which Arauco provided its explicit and conditional guarantee up to 50% of total amount. Additionally, this project requires from Arauco around USD200 million of annual capital contributions during 2011 - 2012, the two-year construction period.
Copec has been expanding internationally. It started in 2010 with the acquisition of 56% participation in Proenergia, the controlling shareholder of Terpel. Through its 1,270 retail stores in Colombia, Terpel is the largest fuel retail chain in Colombia with 37% market share. The price of USD285 million was financed with a combination of a USD210 million interest-bearing inter-company loan with Empresas Copec and short term debt. During December 2010, Copec began consolidating Terpel, which doubled its size of operations. During October 2011, Copec paid USD 180 million to increase its participation in Terpel to 39% from 26%. Copec's intention is to increase its stake in Terpel with additional investments that could be in the range of USD 100 million to USD150 million.
To finance the Terpel acquisition, during October, Copec closed a USD750 million loan. About USD400 million will be used to refinance short term debt arising from working capital requirements. The transaction should imply a temporary USD340 million net debt increase for Copec, which should be prepaid with proceeds from the sale of Chilean operations of Terpel for USD320 million to Quinenco. This transaction is in process of being approved by the Chilean antitrust court.
Other investment projects at the holding company level are also taking place. Empresas Copec is carrying out the Minera Isla Riesco project through a 50/50 Joint Venture with the Von Appen group. This project consists of the development of a coal mine that will have an annual output of four to six million tons of coal per year, which will be used to supply thermoelectric generators in Chile. The project will involve a total investment of USD530 million. The financing will have a Project Finance structure with 70-to-30 debt-to-equity ratio.
Additional information is available at ' www.fitchratings.com '. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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