CHICAGO--()--Strong liquidity and positive medium-term electricity demand support a stable rating outlook for Latin American power companies for 2013, according to a new Fitch Ratings report.
'Latin American electricity demand is anticipated to be positively correlated to GDP, which is expected to grow by 3.8% in 2013, up from 3% in 2012,' said Lucas Aristizabal, Director. 'Latin American power companies' liquidity also continues to be strong. As of June 2012, the median cash in hand and cash in hand plus last 12 months funds from operations covered short-term debt by approximately 1.1x and 8.7x, respectively. Nevertheless, access to credit continues to be a concern for some companies given significant capital needs over the medium term.'
The Brazilian government's attempts to lower end user energy tariffs by as much as 20% remain a concern as some of these efforts - including a proposal to renew electric concessions early for an upfront payment and lower tariffs and revenues - have the potential to negatively impact credit ratings. Most notably the upfront payment might not be enough for Eletrobras to adjust its capital structure to a level that will still be in line with the company's credit quality.
In general, the Brazilian government's proposals will limit available funds to reinvest internal cash flow generation back into the electricity sector and reduce their ability to access debt capital markets and bank financing.
Electricity demand is expected to be especially strong in Chile, Peru and Panama and will require capacity additions and associated transmission and distribution investments. Announced capacity expansions will most likely be insufficient to keep up with energy demand growth in Argentina, Venezuela, and some Central American countries. This, coupled with already uncomfortably low energy reserve margins in these countries, will have significant short- and long-term consequences.
An adequate and proactive regulatory framework supporting cash flow is fundamental to attracting private investment. Countries with less predictable regulatory frameworks and more government intervention, such as Venezuela, Dominican Republic and Argentina, will have to depend heavily on government support to meet growing electricity demand and are considered to be more prone to electricity shortages and inefficient generation capacity in the long run.
Rating actions during 2012 were equally divided between upgrades and downgrades with only 10 rating actions resulting in a rating change. Of the five downgrades during 2012, three were related to Grupo Rede, which defaulted on its financial obligations during this year.
The full report, titled '2013 Outlook: Latin America Power Sector', is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2013 Outlook: Latin America Power Sector