NEW YORK--()--Fitch Ratings believes that a potential full or partial acquisition of Copeinca ASA (Copeinca) and its fully owned subsidiary Corporacion Pesquera Inca SAC (COPEINCA) by China Fisheries Group Limited (CFGL; rated 'BB-' with a Stable Outlook by Fitch) would most likely have a neutral to mildly positive impact on the credit quality of Copeinca. The credit impact of any transaction on the ratings would depend upon the final financing structure. In this context, Fitch has considered several potential scenarios in which CFGL successfully acquires anywhere between 50.01% and 100% of Copeinca at a price close to that recently offered.
In Fitch's opinion, in most of the likely scenarios, the benefits for Copeinca's business profile would offset an increased debt burden.
CFGL already owns 6.2% of the Center-North Fishing Quota in Peru through its existing Peruvian operations. A potential combined entity would become the largest fishing company in Peru, holding a combined 16.9% of the quota, followed by the current leader TASA with 14.1% and Diamante with 8.5%. Through an acquisition by CFGL, Copeinca would benefit from becoming part of a larger, more diversified entity with global operations. Synergies from merging with the Peruvian operations are also likely.
Fitch believes that if CFGL was to acquire less than 100% stake in Copeinca, it would lean towards financing the transaction with a larger equity portion. In the potential scenario of a full acquisition, Fitch estimates that the pro forma combined entity would have a Total Debt-to-EBITDA ratio of 3.3x as of Dec. 31, 2012, about a turn higher than Copeinca's current Debt-to-EBITDA ratio of 2.3x as of Dec.r 31, 2012. Fitch notes that in the volatile fishing industry, the higher debt ratio would still fall within the upper boundary considered appropriate for the 'B+' rating category. The potential free cash flow generation and debt repayment capacity of the combined entity would also be considered.
In a scenario where the entire acquisition debt is placed at Copeinca's level, potentially bringing its leverage to at or above 5x, several other factors would be considered, including the strategic importance that a fully owned asset would have for CFGL and the potential benefits and liabilities of merging CFGL's Peruvian operations (2012 EBITDA of USD53 million) into Copeinca. Fitch considers such a scenario possible, but unlikely, and notes that in deciding the final capital structure, CFGL would consider such factors as tax benefits versus cost of financing. CFGL's current Peruvian operations bear only working capital debt, and most of the debt is at the holding company level.
CFGL recently announced that it intends to launch a voluntary cash tender offer for all of the shares of Copeinca for a cash consideration of approximately US$556 million for 100% of the equity. The CFGL offer represents a premium of 29.4% over the volume-weighted average share price of Copeinca for the three-month period prior to the offer, and a premium of 21.6% over the closing price of the shares on the day before the offer. According to CFGL's announcement, the combined level of binding commitments and indicated positive support stands at 41.5% of the outstanding shares. The transaction would be 50%-50% debt-equity financed if 100% of the shares were tendered. CFGL's recent equity offering of $280 million is fully underwritten and the company has also secured a USD295 million bridge loan.
The Board of Directors of Copeinca subsequently issued a statement that it will appoint financial advisors to explore strategic alternatives and that the major shareholders have a negative view on the presented intended offer, including the Dyer Coriat Holding (32.4%), and Family and Weilheim Investments (6%). Ocean Harvest, with 13.9% of the shares has not entered into the pre-acceptance agreement, but will consider the offer.
Fitch currently has the following ratings:
--Foreign Currency IDR 'B+'.
Corporacion Pesquera Inca SAC (COPEINCA)
--Foreign Currency IDR 'B+';
--USD175 million senior unsecured notes 'B+/RR4'.
Additional information is available at 'www.fitchratings.com'.