Fitch Affirms Invepar at 'BB-'; Removes Rating Watch Negative
Fitch Ratings has affirmed Investimentos e Participacoes em Infraestrutura S.A.-Invepar's (Invepar) foreign and local currency Issuer Default Ratings (IDRs) at 'BB-' and the long-term national scale rating at 'A(bra)'. The Rating Watch Negative has been removed and the Rating Outlook is Stable.
The removal of the Rating Watch Negative and affirmation of the ratings reflects the continued financial support of Invepar's shareholders to finance the group's aggressive business expansion. The capital injection of BRL1.3 billion that took place during March 2012 will help Invepar to expand its operations while maintaining its debt at manageable levels and bolstering its balance sheet.
Fitch expects that the company will fund its significant investment program over the next few years with project finance debt that has no-recourse to Invepar, thus preserving the company's credit quality. The main investment projects for Invepar during 2012 were the addition of 45.9% in the concession of Guarulhos Airport in Brazil and 100% of Linea Amarilla S.A.C.'s (Via Parque Rimac), a highway in Peru, capitalized by OAS in March 2012. These two projects will require equity from Invepar of BRL1.1 billion in total.
Low Business Risk
Invepar's ratings continue to reflect the group's diversified portfolio within Brazil's infrastructure sector. These assets have a stable track record of operations with robust cash flow generation and also provide a high degree of future cash flow earnings visibility.
The ratings also reflect the aggressive expansion strategy of Invepar and the proven financial support of its shareholders. These include the three largest pension funds in the country, namely Previ, Funcef and Petros, alongside Group OAS (IDR 'B' / national rating 'A-(bra)'), one of the largest companies in Brazil's heavy construction sector. During 2009 to 2012, these entities jointly provided around BRL3 billion of cash to Invepar, highlighting their strong commitment to the group.
Invepar's mature businesses in the toll road and urban mobility segments, namely Linha Amarela S.A.-LAMSA (Linha Amarela), Concessao Metroviaria do Rio de Janeiro S.A.(Metro) and Concessionaria Rio-Teresopolis (CRT), should support a consistent improvement in the company's consolidated operating cash generation. In turn, Lamsa and CRT's cash generation is expected to be reflected in the flow of dividends to the holding company from 2012 onwards.
Leverage Should Remain High
According to Fitch's base case, Invepar's consolidated net adjusted debt to EBITDAR ratio excluding project finance debt is expected to remain close to 4.0x by the end of 2012, and increase to 5.0x by 2015. These expectations compare with actual net adjusted debt to EBITDAR ratios of 5.9x in 2011 and 6.0x in 2010.
On a consolidated basis including project finance debt, Invepar's net adjusted debt to latest 12 months (LTM) EBITDAR ratio is expected to increase to 15.0x by the end of 2012 from 4.5x in June 2012, and 7.2x in 2011, according to Fitch's methodology. Increasing leverage ratios are partially mitigated by the low level of corporate debt and by the positive track record of tangible shareholder support. In addition, the potential cash generation from the projects currently under development should also benefit the group's credit profile.
As of June 30, 2012, Invepar's total consolidated debt was BRL3.5 billion and cash plus marketable securities was BRL1.8 billion. Total corporate debt totaled BRL2.1 billion and there was no debt at the holding company level for the period. The new projects of Guarulhos Airport and Via Parque Rimac should add around BRL2.7 billion of new debt, including BRL2.3 billion of concession obligation, according to Fitch's methodology, by the end of 2012. This debt will fund the expected capex for these projects that will total BRL6.9 billion combined from 2012 to 2016.
Fitch's base case scenario estimates that Invepar's subsidiaries will distribute around BRL120 million of dividends to the group by 2016. This is based on historical payments seen within the group. Supporting this expectation, Invepar received BRL66 million of dividends from mature assets such as Lamsa and CRT during 2011. Dividends received are likely to be around BRL80 million during 2012.
Guarulhos Project: High Risks But Good Opportunities
The Guarulhos Airport project is risky due to the uncertainties surrounding the airport regulatory environment in Brazil. This project is part of the first lot of airport concessions in the country. In addition, this project is significantly leveraging, with projected capex of BRL5.8 billion from 2012 to 2016 and a concession grant fee of BRL16.3 billion throughout the 20 years of concession totaling around BRL800 million per year. This project is expected to cost Invepar around BRL956 million from 2012 to 2016, in total. The likelihood of a positive rate of return for this project strongly depends on the ability of Invepar to capture a high level of commercial revenues at the airport.
The Guarulhos project has a high potential for future growth that depends on significant investments to increase its operating capacity. The expectation of increasing cash flow is based on the fact that Guarulhos is the busiest airport in Latin America and the main access to international flights in Brazil. The airport benefits from its location in the metropolitan region of Sao Paulo serving a population of 19.7 million people. Sao Paulo is the highest income region in the country responsible for 33% of Brazilian GDP.
Strong EBITDAR Generation By 2015
Fitch believes that the potential for higher cash generation for Invepar is high from 2015 onwards, following the maturity of projects currently in their ramp-up phase. Consolidated EBITDAR should reach BRL1.5 billion to BRL1.8 billion in 2016, with close to 60% of EBITDAR deriving from Guarulhos Airport. Invepar generated consolidated EBITDAR of BRL378 million and funds from operations (FFO) of negative BRL187 million during the LTM to June 30, 2012. These results compare with EBITDAR of BRL314 million and FFO of BRL52 million in 2010.
Key Rating Drivers
A positive rating action is not likely until the company matures its investments.
The ratings could be downgraded following a change in shareholder policy of supporting the company through capital injections, as needed. The ratings could also be downgraded in the case of a substantial deterioration in the performance of the group's operating subsidiaries. Increased corporate net leverage ratio above 6.0x, and relevant acquisitions/investments not expected by the agency could also result in a negative rating action.
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.
--'Corporate Rating Methodology' dated Aug. 8, 2012;
-- Parent and Subsidiary Rating Linkage ' dated Aug. 8, 2012
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Jaqueline Carvalho, Rio de Janeiro
Tel: +55 21 4503 2623
Gisele Paolino, Director
Fitch Ratings Brasil LTDA
Praca XV de Novembro, 20 / 401-B
Rio de Janeiro, RJ 20010-010
Ingo Araujo, Associate Director
Daniel Kastholm, CFA, Managing Director