RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has affirmed Investimentos e Participacoes em Infraestrutura S.A.- Invepar's (Invepar) foreign and local currency Issuer Default Ratings (IDRs) at 'BB-' and its long-term national scale rating at 'A(bra)'. The Rating Outlook is Stable.
The affirmation of the ratings reflects the company's solid business profile, which is based upon its diversified portfolio of assets in low-risk industries that are related to Brazil's infrastructure sector. The rating affirmations also take into account the proven financial support from its main shareholders, Previ, Funcef and Petros (the three largest Brazilian pension funds), along with Group OAS. The ratings are constrained by the company's highly leveraged capital structure, which is due to its high level of investments.
KEY RATING DRIVERS
Low Business Risk and Growing EBITDAR
Invepar's ratings continue to reflect the group's diversified portfolio within Brazil's infrastructure sector. These assets have a stable track record of operations with improving cash flow generation. This provides a high degree of future cash flow earnings visibility.
Invepar's main assets are Linha Amarela S/A - LAMSA (Lamsa) Concessionaria Auto Raposo Tavares (CART), Concessionaria Litoral Norte S.A. - CLN (CLN) and Via Parque Rimac (Rimac) - all toll road companies; Concessao Metroviaria do Rio de Janeiro S.A. (Metro Rio), the subway system in Rio de Janeiro City; and Concessionaria Aeroporto Internacional de Guarulhos (GRU Airport). Invepar's portfolio also includes five joint ventures: Concessionaria Bahia Norte S.A. (CBN), Concessionaria Rota do Atlantico S.A. (CRA), Concessionaria Via Rio S.A. (Via Rio), Concessionaria VLT Carioca (VLT Carioca) and Concessionaria Rio Teresopolis S.A. (CRT). Invepar also holds a non-operational company, Metrobarra S.A. (Metrobarra), whose sole asset is a call of the concession contract of line 4 of the Rio de Janeiro City's subway.
Financial Flexibility Provided by Shareholders
The shareholders of Invepar are the three largest Brazilian pension funds, Previ, Funcef and Petros, along with Group OAS (Fitch IDR of 'B'; national rating 'BBB(bra)'), one of the largest companies in Brazil's heavy construction sector. The support of these shareholders is a key rating consideration. Between 2009 and 2012, these entities jointly provided Invepar with around BRL3 billion of cash to fund its growth.
Guarulhos Project Increases Risks
The Guarulhos Airport project is still a concern because of the uncertainties surrounding the airport regulatory environment in Brazil. This project is part of the first lot of airport concessions in the country. In addition, this project is significantly leveraged, with projected capex of BRL5.8 billion from 2012 to 2016 and a concession grant fee of BRL16.3 billion, which will be paid through 20 years of concessions payments of around BRL800 million per year. This project is expected to cost Invepar around BRL1.4 billion from 2013 to 2017, in total.
The likelihood of a positive rate of return for this project strongly depends on the ability of Invepar to capture a high level of commercial revenues through increasing capacity at the airport. Positively, Guarulhos is the busiest airport in Latin America and the main access to international flights in Brazil. The airport benefits from its location in the metropolitan region of Sao Paulo serving a population of 19.7 million people. Sao Paulo is the highest income region in the country, responsible for 33% of Brazilian GDP.
Strong EBITDAR Generation By 2014
Fitch believes that the potential for greater cash generation for Invepar is high from 2014 onwards, following the maturity of projects currently in their ramp-up phase, mainly CART, Lamsac and Guarulhos Airport. For 2016, Fitch projects Invepar's consolidated EBITDAR to grow to between BRL1.2 billion and BRL1.5 billion, with close to 30% of EBITDAR deriving from Guarulhos Airport. Invepar generated consolidated EBITDAR of BRL678 million and funds from operations (FFO) of BRL1.7 billion during the LTM to June 30, 2013. These results compare with EBITDAR of BRL434 million and FFO of BRL648 million in 2012.
Leverage Should Remain High
According to Fitch's base case scenario, Invepar's consolidated net adjusted debt-to-EBITDAR ratio excluding project finance debt is expected to remain close to 6.4x by the end of 2013. This level of leverage is higher than the company's net adjusted debt-to-EBITDAR ratios of 5.9x in 2011 and 6.0x in 2010. The increase in leverage is the result of the issuance of long-term debt for the Guarulhos project, which will be being guaranteed by Invepar.
On a consolidated basis including project finance debt, Invepar's net adjusted debt ratio increased to 39.5x during the LTM ended June 30, 2013, from 9.0x in 2011. This huge increase in leverage is also related to the addition of debt related to the Guarulhos projection, whose proportional grant fee to Invepar was BRL5.7 billion. Increasing leverage ratios are partially mitigated by the low level of corporate debt at Invepar and by its positive track record of tangible shareholder support. In addition, the potential cash generation from the projects currently under development should also benefit the group's credit profile.
Fitch's base case scenario estimates that Invepar's subsidiaries will distribute around BRL120 million of dividends to the group by 2016. This is based on historical payments seen within the group. Supporting this expectation, Invepar received BRL63 million of dividends from mature assets Lamsa and CRT during 2012. According to Fitch's expectations, dividends received are likely to be around BRL90 million during 2013.
RATING SENSITIVITIES
The ratings could be upgraded following the development of the new projects which may lead to a more conservative capex level and, consequently, a stronger free cash flow generation. A decline in corporate leverage for a sustained period of time could also trigger a positive rating action.
Invepar's ratings could be downgraded if shareholders fail to provide capital injections, as needed. The ratings could also be downgraded in the case of a substantial deterioration in the performance of the group's operating subsidiaries. Increased corporate net leverage ratio to above 6.0x for a long frame of time and relevant acquisitions/investments could also result in a negative rating action.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', including 'Parent and Subsidiary Rating Linkage', dated Aug. 5, 2013.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=803342
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