SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of OAS group as follows:
OAS S.A. (OAS):
--Long-Term Foreign Currency Issuer Default Ratings (IDR) at 'B+';
--Long-Term Local Currency IDR at 'B+';
--Long-Term National Rating at 'BBB+(bra)';
--3rd Debenture Issue, BRL300 million, maturity in December 2016, Long-term National Rating at 'BBB+(bra)';
--4th Debenture Issue, BRL250 million, maturity in January 2027, Long-term National Rating at 'BBB+(bra)';
--5th Debenture Issue, BRL300 million, maturity in May 2015, Long-term National Rating at 'BBB+(bra)'.
Construtora OAS S.A. (Construtora OAS):
--Long-term Foreign Currency IDR at 'B+';
--Long-term Local Currency IDR at 'B+';
--Long-term National Rating at 'BBB+(bra)'.
OAS Investments GmbH:
--Long-term Foreign Currency IDR at 'B+';
--Senior Notes Issue, USD850 million, maturity October 2019 at 'B+'/'RR4'.
OAS Empreendimentos S.A. (OAS Empreendimentos)
--Long Term National Rating at 'BBB-(bra)';
--2nd Debenture Issue, BRL60 million, maturity in July 2014, guaranteed by OAS S.A., Long-term National Rating at 'BBB+(bra)'.
OAS Finance Ltd.:
--Senior Notes Issue, USD500 million, Perpetual Bonds, unconditionally guaranteed by OAS,Construtora OAS and OAS Investimentos (OASI) at 'B+'/'RR4'.
The Outlook for the corporate ratings is Stable.
KEY RATING DRIVERS
The ratings reflect OAS' high leverage and the necessity of deleveraging its capital structure on a consolidated basis in the next three years. In addition, the group's heavy construction company has a strong financial profile and is the main cash generator for OAS, which supports the group's aggressive growth strategy. OAS' strong liquidity and extended debt amortization profile were also factored in the analysis.
Fitch expects OAS to preserve conservative cash cushion to support the group's growth strategy and debt maturities. The group's consolidated leverage is high due to its expansion in the infrastructure concession segment. However, Fitch believes that most of these investments are funded through project finance lines (with limited recourse to OAS) and that the companies should generate cash flow in the medium term to meet their obligations. A faster than expected deleveraging would predominately involve a partial divestiture of OASI's projects.
The ratings incorporate the strong expertise and the position of the OAS group as one of the five largest contractors in the Brazilian civil construction sector by revenues, and its long track record in the domestic engineering and heavy construction. OAS pursues to benefit from the growth potential in the international market, mainly in Latin America and Africa. The ratings also factor the backlog concentration in some large works; the volatility inherent to the construction sector; the support required for the homebuilding company of the group; and the group's high investments over the next three years on the pre-operational projects underneath OASI.
Construtora OAS has the same ratings of its controller OAS, since it has historically been the group's main operating company and cash generator. The company is 100% controlled by and operationally integrated to OAS, besides being the guarantor of 77% of the consolidated corporate debt, net of project finance lines.
Strong Financial Profile of Construtora OAS
Construtora OAS' credit metrics should continue to improve, as the company's cash flow generation capacity improves. In 2013, Construtora OAS generated EBITDA of BRL574 million and funds of operations of BRL393 million. EBITDA margin was 9.3% and Fitch expects to remain around 9.5% in 2014. OAS group consolidated cash generation capacity remains pressured by the negative EBITDA of OASI and OAS Empreendimentos. In 2013, Construtora OAS represented 85% of the group's consolidated net revenue and 82% of group's consolidated EBITDA generation.
Strong Liquidity
OAS group's liquidity remains strong and supports the ratings. OAS' relevant cash position partially mitigates the group's high leverage, and limits the risks associated to the still weak operating performance of OASI and the volatility inherent to the construction activities. Fitch expects OAS to preserve strong cash reserves to support the growth phase of its backlog and investments in the pre-operating companies and to maintain an extended consolidated debt amortization profile.
OAS has an extended debt amortization profile. As of Dec. 31, 2013, consolidated cash and marketable securities were BRL3.5 billion and covered 2,3x its consolidated short term debt of BRL1.5 billion. OAS has BRL2.2 million of debt maturing before 2015. The group's liquidity is further reinforced by a four-year BRL600 million stand-by credit line closed at the end of 2013. Excluding limited-recourse debt related to project financing, cash to short-term debt coverage improved to 2.9 in 2013 from 2.7x in 2012.
Leverage Should Remain High
OAS' leverage is high and expected to gradually reduce during the next three years, as EBITDA generation should grow due to the startup of activities of subsidiaries of OASI that are still in pre-operational phase and growing cash generation from Construtora OAS. The expansion of the infrastructure concessions segment of the group resulted in a significant increase in consolidated total debt. As of Dec. 31, 2013, total consolidated debt was BRL6.8 billion and included about BRL1.5 billion limited -recourse debt, related to investments funded with project finance lines.
In 2013, total leverage adjusted by limited-recourse debt and restricted cash was 6.9x, according to Fitch criteria, in line with 7.0x registered in 2012. At the same time, net adjusted leverage reached 3.2x in 2013, increasing from 2.4x in 2012. Leverage should gradually decline, more intensively after 2018 following the startup of great part of current projects in pre-operational phase. OASI's potential EBITDA generation, of above BRL400 million by 2018, combined with lower expected equity commitments for the current portfolio, should contribute to reduce the group's leverage.
Divestures of group's subsidiaries shares could result in faster than expected deleveraging and should also reduce the group's equity commitments for the next few years. During 2013, the group has successfully sold 39% of OAS Oleo e Gas to FI-FGTS for BRL800 million and 20% of OAS Empreendimentos to Funcef for BRL400 million. Proceeds from the sale of assets should be used to support these companies operations and eased the pressured on group's leverage.
Strong Backlog Supports Growth
Construtora OAS' backlog was BRL19.5 billion at the end of 2013 and equivalent to 2.2 years of operations. Domestic works were responsible for 70% of the backlog, while the public sector contributed with 53%. The company's international projects, mainly in Africa and Latin America, accounts for 30% of its total backlog and counts on client advanced payment and funding guarantees structure. The backlog is, however, concentrated with ten largest projects representing 49% of the total, excluding paralyzed works. The current backlog should support the group's growth in the next periods, both in its activities as subcontractor and in the concession area.
RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to a negative rating action include:
--Reduction of operating margins and deterioration of credit metrics due to downturns in the heavy construction activities or increase in execution costs. Such scenarios would further pressure margins and reduce the group's capacity to generate operating cash flow.
--A weaker liquidity and higher leverage to support increased investments could also result in a rating downgrade.
Future developments that may, individually or collectively, lead to a positive rating action include:
--A consistent reduction in net leverage adjusted by limited-recourse debt and restricted cash to levels below 4.0x and evolution of operational cash flow generation, combined with maintenance of strong liquidity position, and lengthened schedule of debt amortization.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug.5, 2013);
--'National Scale Ratings Criteria' (Oct. 31, 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
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826528
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