RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has published a new report on the Brazilian water/wastewater sector that highlights the industry's need for adequate operating efficiency and generation of cash flow from operations (CFFO). Both will be necessary to support the strong investments forecast for the sector during the next five years.
Potential regulatory development is also expected to put pressure on the industry's operators, particularly regarding higher demand for efficiency improvements. Private players are likely to benefit given their overall higher capacity and greater flexibility to enhance efficiency than that of state owned companies.
'The significant capex estimated for the next five years should continue to pressure the industry FCF. This highlights the importance of adequate CFFO to mitigate pressure on companies' financial profiles and credit metrics', said Gustavo Mueller, Associate Director at Fitch.
The report also highlights key issues in assessing water/wastewater companies in Brazil including: water losses and delinquency ratios, financial profile, cost structure and regulatory and hydrologic risks.
Industry fundamentals in the country remain strong and supported by resilient demand, which favors the companies' cash flow predictability, particularly for those with adequate levels of operating efficiency. The regulatory environment is still new, but tariff increases have been implemented satisfactorily thus far.
For 2014, leverage is expected to remain moderate and liquidity is to be observed, particularly for the lower rated players given their reduced capacity to generate CFFO. Private players' operating growth should continue to be driven by developments of public private partnership and acquisition moves, either by incorporation of new concessions or through acquisition of smaller operators. Fitch expects state government companies to increase activity supported by organic growth of base operations and tariff readjustments.
The full special report 'Water/wastewater Operators Peer Study' is available at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Brazilian Basic Sanitation Peer Study (Operating Efficiency Is Key)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744256
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