SANTIAGO, Chile--(BUSINESS WIRE)--Fitch Ratings affirms Empresas Copec S.A.'s Issuer Default Ratings (IDRs) and debt ratings as follows:
--Foreign currency IDR at 'BBB+';
--Local currency IDR at 'BBB+';
--Senior unsecured bond line No. 623 at 'AA(cl)';
--Bond program series A and B, registered under Line No 623 at 'AA(cl)'
--Senior unsecured bond line No. 624 at 'AA(cl)';
--Bond program series C and D registered under Line No 624 at 'AA(cl)';
--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)'), 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 its minority investments. Recent financial performance was strong. During the LTM ending September 2010, Empresas Copec had USD 1.6 billion of consolidated EBITDA, USD 4.1 billion of consolidated total debt and USD 1.5 billion of cash and marketable securities, resulting in a net debt-to-EBITDA ratio of 1.6 times (x) and a total debt-to-EBITDA ratio of 2.5x. This compares to 3,5x and 2,3x, respectively as of Dec. 31, 2009.
Empresas Copec, the holding company, services its debt interest expenses with interest income it receives from its subsidiaries Copec and Abastible. Only USD 310 million of the company's consolidated debt of USD 4.1 billion is at the holding company level, corresponding to the UF 7 million 21-year-bullet maturity bond. Bond proceeds were transferred to Copec and Abastible in the form of an interest-bearing inter-company loan, which has terms and conditions that mirror those of the bond structure. Copec used the bond proceeds for financing the Terpel acquisition, while Abastible distributed extraordinary dividends to its parent.
Emresas Copec benefits from dividends received from its strong subsidiaries. During 2010, Empresas Copec received USD 410 million of dividends, an increase from USD 303 million of dividends received during 2009. Arauco, the second largest market pulp company in the world, accounted for USD 142 million of the company's dividends. Copec, the leading distributor of liquid fuel in Chile, provided USD 118 million of dividends. Abastible, an important LPG distributor in Chile, accounted for USD 144 million. Dividends distributed by Abastible were extraordinarily high and correspond to a financial strategy implemented by Empresas Copec to increase its subsidiary's leverage for better financial structure. For 2011 and 2012, Empresas Copec should benefit from robust performance in its forestry division and healthy free cash flow generation from Copec. Dividends received from Abastible should decrease to USD 50 million, similar to historical figures. Ongoing annual dividends received should reach nearly USD 480 million, in line with historical figures.
The company is expected to exhibit a solid operating profile during 2011, with Fitch projections indicating approximately USD 2 billion in consolidated EBITDA, up from USD 1.7 billion estimated for 2010. It is expected that Arauco's EBITDA remains at USD 1.5 million due to a favorable pulp pricing environment and demand. International pulp prices should remain at similar levels than 2010 given the absence of new pulp projects coming to the market, but with a growing tissue and packaging demand, especially from China. This division should also benefit from one year of full operations of its pulp mills, after the temporary stoppage during the second quarter of 2010 following the earthquake that led to 600,000 tons of lower production. The fuel division in turn, should double its EBITDA generation due to one year of consolidation with Terpel's operations. Fitch projections for total consolidated debt at the end of 2011 are in the range of around USD 4.2 billion. As a result, Empresas Copec should exhibit sound credit metrics with a debt-to-Ebitda around 2.0x and Net debt-to-Ebitda below 1.7x.
The company's strategies to increase its geographic diversification are viewed favorably. During May 2010 Copec purchased 47.2% participation in Proenergia, the controlling shareholder of Terpel for USD 240 million. Through its 1,270 retail stores in Colombia, Terpel is the largest fuel retail chain with 37% market share. During the second semester of 2010, Copec launched a bid in the Colombian market for the remaining shares of Proenergia, ending in December with a 56% controlling participation in this company for an additional USD 45 million investment, and consolidating with Proenergia. The company will also embark on a third step by considering a bid for SIE, the investment vehicle through which Proenergia controls Terpel with its 88.9% stake. This bid is likely to take place during the first quarter of 2011, and additional investments are expected to be financed by Copec without the support of its parent.
Growth prospects for Arauco are sound, with the company announcing the construction of a new 1.3 million tons per year pulp mill in Uruguay in a 50/50 joint venture with Stora Enso. The total investment for this project should amount to USD 1.9 billion, also including a port and a co-generation facility. Construction is expected to start during 2011 and operations by mid 2013. The mill has a forest base of 254,000 hectares of land and 126,000 hectares of plantations after the acquisition of forestry assets from Grupo Ence in Uruguay during 2009. The financing of the project is expected to be through a Project Finance structure, with 60-to-40 debt-to-equity ratio. This project will require around USD 190 million of annual capital contributions during the two-year construction period from Arauco.
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 4 to 6 million tons of coal per year, which will be used to supply thermoelectric generators in Chile. The project will involve a total investment of USD 450 million. The financing will have a Project Finance structure with 60-to-40 debt-to-equity ratio. Empresas Copec has to make a USD 90 million total equity contribution, most of which has already been done. Only minor investments remain, in the range of USD 20 million for the next two years. While this project, which is expected to become operational during 2012, is not material in relation to the size of Empresas Copec, and represents a starting point for larger investments by the company into the mining sector.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 13, 2010);
--'Parent Subsidiary Rating Linkage' (July 14, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Parent and Subsidiary Rating Linkage Criteria Report
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826
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