Fitch Upgrades Transportadora de Gas Internacional's IDRs to 'BBB-'
Fitch Ratings has upgraded Transportadora de Gas Internacional S.A. E.S.P.'s (TGI) foreign and local currency Issuer Default Ratings (IDRs) to 'BBB-' from 'BB+'. These rating actions apply to USD750 million of debt outstanding. The Rating Outlook for is Stable.
The rating action reflects Fitch's recent upgrade of Empresa de Energia de Bogota's (EEB) to 'BBB-', which was a result of its improving financial profile. TGI's upgrade reflects the company's linkage with its primary shareholder, EEB, which supports the company through intercompany loans. TGI's upgrade also reflects the company's improved cash flow generation due to recent investments, improving credit metrics and solid contracted position.
Low Business Risk:
TGI's ratings reflect the company's low business risk profile, which stems from its stable and predictable cash flow generation, as well as its strong competitive position. TGI has favorable long-term, take-or-pay contracts with approximately 80% of revenues coming from regulated fixed tariffs. The high percentage of fixed capacity payments from a diversified portfolio of off-takers adds to cash flow stability. The company has low exposure to volume risk as only approximately 20% of its revenues are linked to volume throughput. TGI's pipeline location and the importance of its service area, where 70% of the Colombian population resides, represent great growth potential and help support the company's investment grade rating.
TGI's leverage level is moderate with debt to EBITDA of approximately 2.9 times (x) in dollar terms as of Sept. 30, 2012. Including a USD370 million deeply subordinated intercompany loan from EEB, leverage would be approximately 4.3x in dollar terms. Going forward, TGI's leverage could decline in the future as a result of cash flow growth due to recent investments and the expectation of a favorable resolution of the company's current tariff dispute. As of the LTM ended Sept. 30, 2012, TGI reported an EBITDA of approximately USD263 million and total senior debt of approximately USD857 million.
Parent Support and Moderate Regulatory Risk
TGI benefits from its parent company's explicit and implicit support. EEB owns 68.1% of TGI, and, in turn, the District Capital of Bogota (Bogota DC; foreign currency IDR 'BBB-') owns 76.3% of EEB. TGI's ratings also incorporate its exposure to regulatory risk, as the bulk of its revenue comes from contract tariffs, which are set by the regulator. TGI's revenue is determined by the maximum allowable tariff set by the regulator every five years and adjusted according to inflation every year. The company is expected to benefits from its ongoing tariff appeal, which initially granted the company a 17% revenue increase; the company claims this increase would not compensate it for all of the investments it had made.
Strong Liquidity and Low Refinancing Risk:
The company's adequate liquidity position is supported by its cash on hand, strong internal cash flow generation and favorable amortization schedule. The company has no significant amounts of debt coming due before 2022. On Sept. 30, 2012, TGI's cash and marketable securities were USD105 million, and consolidated cash at EEB was USD286 million. TGI is not expected to pay dividends in the short term, but this policy may change in the future. TGI's regulated revenues are partially indexed to the U.S. dollar (approximately 60% of revenue are indexed to USD), which mitigates the risk from currency fluctuations as USD denominated revenues satisfactorily cover interest expenses. Going forward, the company's liquidity position will be supported by its internal cash flow generation and easing capital investments needs as the company completed a significant portion of its expansion plan during 2012. Capital expenditures for 2013 to 2016 are estimated at approximately USD390 million, a significant reduction from 2011 capital expenditures of USD733 million.
A negative rating action or Outlook would be considered if leverage reached 4.0x and stayed above that level for sustained period of time.
A positive rating action or Outlook would be considered if the company significantly reduces its leverage for a sustained period of time.
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.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012.
Applicable Criteria and Related Research:
Corporate Rating Methodology
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