MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Comision Federal de Electricidad's (CFE) ratings as follows:
--Foreign Currency Issuer Default Rating (IDR) at 'BBB';
--Local
Currency IDR at 'BBB+';
--USD 1 billion senior notes due 2021 at
'BBB';
--USD 750 million senior notes due 2042 at 'BBB';
--National
scale long-term rating at 'AAA(mex)';
--Local Certificados
Bursatiles Issuances at 'AAA(mex)';
--National scale short-term
rating at 'F1+(mex)';
--Senior unsecured short-term peso program at
'F1+(mex)'.
The Rating Outlook is Stable.
CFE's ratings reflect the company's position as the largest electricity generator in Mexico. Also reflected are CFE's strong linkage with and strategic importance to the Mexican government and the government's implicit support. CFE's foreign and local currency IDR ratings are at the same level as Mexico's sovereign rating. CFE is a decentralized public entity of the Mexican federal government. The company also has exclusive rights for the transmission and distribution of electricity, which makes it strategically important for the country. CFE's ratings also incorporate the risk of political interference.
Strong linkage between government and CFE:
The relationship between CFE and the government is strong and extends beyond its ownership. CFE's budget is incorporated into the country's federal budget and requires the approval of the Mexican Congress. The Minister of Energy acts as chairman of the company's board. In addition, the company's rates and operational costs are set annually by the Mexican government based on anticipated electricity generation capabilities and long-term marginal costs, as well as other variables. While CFE's monopoly position decreases competitive risks and other risks related to business operations, the company's financial performance is highly correlated with that of the Mexican federal government, which does not provide an explicit debt guarantee.
CFE generates approximately 90% of the electricity generated in Mexico and owns a 100% of transmission and distribution infrastructure. The company's right to be the exclusive transmitter and distributor in Mexico was established by the Mexican constitution and Electric Energy Public Service law. As a result, CFE's budget is incorporated into Mexico's federal government budget, which requires the approval of the Mexican Congress.
The setting of rates by the government exposes the company to regulatory risk and political interference. However, CFE's tariff structure includes monthly fuel cost adjustment for approximately 76% of revenues and subsidies to agricultural and residential sectors. CFE is partially exposed to fuel prices, fluctuations in production costs, and unfavorable tariffs, which at times could be set below operating costs for a specific class of customer.
Higher electricity demand requires 27TW of additional capacity by 2025:
According to CFE's electricity 2011-2025 investment program (POISE), the company expects annual GDP's annual growth to average 3.5% during the next 15 years. This is expected to translate into an electricity demand growth of 3.6% per year during this period. If this growth materializes, it would mean that electricity consumption would increase to approximately 404.7 TWh by 2025, from 238.8 TWh in 2010 driven by an average 5.1% of the industrial sector. The Mexican electricity industry will require capacity additions of approximately 27 TW, during the next 15 years, to cover the national energy power consumption. Such investment is expected to be financed by the company's cash generation and the 'Proyectos de Impacto Diferido en el Registro del Gasto' (PIDIREGAS) program, which includes: independent power producers (IPPs) and Public Finance Works Program (OPF).
As of March 31, 2012 total on balance sheet debt was MXN $259 billion which increases to MXN $699.4 billion when including unfunded pensions liabilities. Total debt is composed of MXN $56.5 billion of local currency debt, MXN $55.1 billion of foreign currency debt, MXN $78.7 as Pidiregas debt and MXN $68.7 billion in PEE leases. Debt maturity profile is manageable with MXN $48.9 billion maturing within the next two years of which MXN $24.2 billion are short-term, compared to MXN $53.3 billion in cash and marketable securities.
For the 12 months ending March 31 2012, CFE has revenues of MXN $302.8 billion and EBITDAP (EBITDA + Pension Expenses) of MXN $42.7 billion, MXN $8.5 billion higher than its 2011 results. During the first three months of 2012, CFE's revenues reflected a 17% increase compared to March 2011. Of total customers, approximately 88% are residential and of total revenues 59% are Industrial customers and 24% Residential. CFE has 52,758 MW of installed capacity of which 68.5% is thermo, 21.9% hydro and 9.6% of others technologies.
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. 12, 2011);
--'Parent and Subsidiary Rating
Linkage' (Aug. 12, 2011);
--'Rating Latin American Utilities,
Power, Gas, and Water Companies' (July 27, 2011);
--'National
Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Parent
and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210
Rating
Latin American Utilities, Power, Gas, and Water Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=644949
National
Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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