BUENOS AIRES, Argentina--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Compania Latinoamericana de Infraestructura y Servicios S.A. (CLISA) as follows:
--Foreign currency Issuer Default Rating (IDR) at 'B-';
--Local currency IDR at 'B-'.
The Rating Outlook is Negative.
Key Rating Drivers:
The 'B-' ratings of CLISA is constrained by the sovereign rating of Argentina, which has a 'B-' local currency IDR rating. The Rating Outlook for the sovereign is also Negative. Key concerns of corporates domiciled in Argentina include high inflation, government meddling, economic uncertainty, and limited access to debt markets. The Argentina government has a country ceiling of 'B-', which limits the foreign currency rating of most Argentine corporates, including CLISA to 'B-'. Country ceilings are designed to reflect the risks associated with sovereigns placing restrictions upon private sector corporates that may prevent them from converting local currency (LC) to any foreign currency (FC) under a stress scenario, and/or may not allow the transfer of FC abroad to service FC debt obligations.
CLISA has a strong market position as one of Argentina's largest privately owned industrial conglomerates and would be rated higher if its ratings were not constrained by the credit quality of the Argentine government. CLISA operates in four main businesses: construction and toll road concessions (through Benito Roggio e Hijos [BRH]), water treatment, waste management (CLIBA), and transportation. Over the last five years, CLISA's cash flow generation grew steadily, following positive trends for construction, which is primarily driven by public works. During the last 12 months ended Sept. 30, 2013, the company reported sales and EBITDA of US$1,020 million and US$166 million, respectively, an improvement from the US$1,130 million and US$154 million at fiscal year-end (FYE) 2012. This level of cash flow compares to US$336 million of debt and US$95 million of cash.
The company's cash flow is exposed to the cycles of the construction industry and public works in Argentina. While infrastructure needs remain high, the construction segment is currently undergoing a deceleration as the government has reduced funding on future projects. However, BRH's construction backlog continued to be strong at US$845 million in September 2013 (AR$5,144 million) allowing the company to maintain an important cash generation for approximately three years. The company is also exposed to collection risk derived from having the government as its main counterparty.
CLISA's main activities depend on contractual agreements and government regulations at the national, provincial and municipal levels. Exposure to regulatory risk derives from the delay in the renegotiations of public service contracts. In particular, in its mass transportation subsidiary Metrovias there has been heighten political risk since the National Government attempt to transfer the subway concession to Buenos Aires City. Most of Metrovias incomes were subsidies from the National Government. However, in April 2013, Metrovias and SBASE signed an agreement in which SBASE granted exclusively to Metrovias the operation and maintenance of the subway, excluding the exploitation of collateral services and the execution of works and investments. The term of the contract is 2 years, extendable for one more year by SBASE.
Rating Sensitivities:
The Negative Outlook reflects the close relationship between CLISA and the Argentina government, which has a 'B' country ceiling and a 'B' local currency IDR with a Negative Outlook. Without an upgrade in the sovereign rating of Argentina, CLISA's ratings will likely not be upgraded. The company will likely not be downgraded unless the sovereign's LC IDR is downgraded or its 'B-' country ceiling lowered.
Additional information is available 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Country-Specific Treatment of Recovery Ratings' (June 28, 2013);
--'Rating Non-Financial Corporates Above the Country Ceiling' (Jan. 25, 2013).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=809728
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