CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Transportadora de Gas Internacional S.A. E.S.P.'s (TGI) foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-'. These rating actions apply to USD750 million of debt outstanding. The Rating Outlook for is Stable.
Key Rating Drivers
TGI's ratings reflect the company's stable and predictable cash flow generation as well as its moderate leverage position. Historically, TGI has benefited from its linkage to its primary shareholder, Empresa de Energia de Bogota (EEB), which supports the company through intercompany loans. TGI's exposure to regulatory risk is considered moderate and its liquidity strong, further supporting its ratings.
Stable Cash Flow and 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 83% of revenues coming from regulated fixed tariffs. This fixed capacity payments from a diversified portfolio of off-takers add to cash flow stability. The company has low exposure to volume risk as only 17% of revenue is 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 credit profile and credit rating.
Moderate Leverage
TGI's leverage level is moderate with debt to EBITDA of approximately 2.6x in dollar terms as of June 30, 2013. Including a USD370 million deeply subordinated intercompany loan from EEB, leverage would be approximately 3.7 in dollar terms. Going forward, TGI's leverage is expected to remain in line with current levels and potentially decrease as some of the company's ongoing expansion projects come on line. Also, the company benefited from the resolution of a tariff dispute that will increase revenues by approximately 10% starting in 2013. As of the LTM ended June 30, 2013, the company reported an EBITDA of approximately USD330 million and total senior debt of approximately USD797 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 income set by the regulator every five years and adjusted by inflation every year.
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 June 30, 2013, TGI's cash and marketable securities were USD235 million, and consolidated cash at EEB was USD595 million. TGI is not expected to pay dividends in the short term; yet, this policy will likely 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 USD364 million, a significant reduction from 2011 capital expenditures of USD733 million.
Rating Sensitivities
A negative rating action or outlook would be considered if the company's financial profile significantly deteriorates to a sustained leverage above 4x.
A positive rating action or Outlook could be considered if the company significantly reduces its leverage for a sustained period of time.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012
Applicable Criteria and Related Research:
Corporate Rating Methodology - Effective from 8 August 2012 - 5 August 2013
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=806795
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