Fitch Ratings has affirmed Transportadora de Gas del Peru S.A.'s (TGP)
Issuer Default Ratings (IDRs) and senior unsecured notes at 'BBB+'. The
Rating Outlook is Stable. A full list of rating actions follows at the
end of this press release.
KEY RATING DRIVERS
Higher Cash Flow Generation Expected
TGP is expanding its pipeline capacity to 920 MMCF/d from 655 MMCF/d to
attend the increasing demand for natural gas in Lima, the largest market
in Peru with potential to continue growing. The extra capacity is
already allocated and is expected to come on line during 2Q-2016. Higher
volumes along with fixed tariffs linked to U.S. currency off take
agreements, will allow TGP to improve its EBITDA generation to USD413
million in 2016 from USD360 million in 2015.
Predictable and Stable Revenue
TGP's cash flow generation is considered stable and predictable,
characteristic of gas transportation companies. The company's revenues
are derived from long-term ship or pay contracts with an average
remaining life of around 17 years. The counterparties of these contracts
have an adequate credit quality. The stability of cash flows is also
supported by the company's stable operating costs and its ability to
pass through these costs to end users. The BOOT agreement defined the
initial maximum tariff TGP is allowed to charge users for their natural
gas (NG) transportation contracts. The BOOT also allows TGP to freely
negotiate tariffs for access to its natural gas liquids (NGL) pipeline.
All NG and NGL transportation tariffs are fixed in U.S. dollars and
adjusted by U.S. inflation.
Strong Competitive Position
The company's competitive position is supported by TGP's natural
monopoly position given the high barriers to entry created by high
capital requirements, economies of scale and geographic location of gas
production and consumption centers. TGP has a 33-year non-exclusive
Build, Own, Operate and Transfer (BOOT) contract to transport NG and NGL
from the country's main gas production formation, Camisea, to the main
consumption area and export terminal. The solid position of the company
is reflected in the fact that 100% of its existing and under development
transport capacity is committed through long-term firm ship-or-pay
contracts. Going forward, the company could benefit from its competitive
position to gain future additional gas transportation contracts.
Solid Financial Profile
TGP's financial profile is considered strong supported by its moderate
leverage and strong cash flow generation due to its contractual
structure. As of year-end 2015, the company had a total financial debt
of approximately USD1.1 billion and a gross leverage of 3.0x. Fitch
projects the company will deleverage following the completion of the
expansion as extra capacity comes on line. Gross Leverage is expected to
be around 2.5x by YE2016. In 2015, TGP's free cash flow was negative and
is expected to remain negative in 2016 due to expansion capex and
dividend payments. Capex for 2016 would be USD140 million and is
expected to be reduced to maintenance levels (around USD50 million) for
the next years. TGP's free cash flow may face pressure from changes to
the company's dividend policy in the absence of future investments.
Moderate Regulatory Risk and Strategic Importance
The company's exposure to regulatory and political risk is considered
low given the strength of the BOOT contract and the Peruvian
government's initiative to promote NG consumption in the country. TGP's
assets are also considered of strategic importance for the country as
they connect the country's main gas production center, Camisea, to the
main demand and export centers. In 2015, TGP transported 100% of the NG
used in Lima and Ica explaining approximately 43% of country's
electricity generation (up to 50% in dry season). Additionally, 100% of
NG exported by Peru and 83% of the NGL used for LPG (liquid petroleum
gas) production in Peru is transported by TGP.
Adequate Gas Supply
TGP's gas supplier, Camisea (Blocks 56, 57 & 88), has proven reserves
for more than 20 years. As of December 2014, according to Peruvian
Ministry of Energy and Mines, Camisea's proven reserves amounted to 13.4
trillion cubic feet (TCF) of NG and 698 million barrels (MMbbl) of NGL.
This accounts for 92% and 96% of total proved reserves of NG and NGL,
respectively. During 2015, 95% of NG in Peru came from Camisea fields.
This bodes well for the company's strategic importance for the country
of Peru and matches the life of outstanding issuances.
RATING SENSITIVITIES
Although a negative rating action or Outlook is not expected in the
short term, it could be considered if TGP's leverage increases above
3.5x on a sustained basis. This could happen if the company adopts an
aggressive dividend policy, or if there are adverse changes to the
regulatory and operating environment.
A positive rating action is unlikely in the short to medium term due to
the company's business concentration risk.
KEY ASSUMPTIONS
--265MMCFD of additional capacity coming online in the 2Q-2016, for
total natural gas transportation capacity of 920MMCFD;
--EBITDA margin around 68%;
--Capex of USD140 million for 2016 and around USD50 million thereafter;
--Approximately 100% of net income paid out in dividends as the
expansion project is completed.
--Minimum cash at USD100 million.
LIQUIDITY
Fitch considers TGP's liquidity position as strong supported by its
solid and stable cash flow generation and flexible debt amortization
schedule. As of December 2015, TGP had cash and short-term investments
of USD149 million positively compared to USD8.6 million as short-term
debt. No significant maturities are due until April 2024 when its USD850
million senior unsecured notes amortize in equal payments for the next
five years.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
Transportadora de Gas del Peru S.A.
--Foreign currency long-term IDR at 'BBB+';
--Local currency long-term IDR at 'BBB+';
--Senior unsecured notes at 'BBB+'.
The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1002258
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002258
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160408005994/en/
Copyright Business Wire 2016
