NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Enersis S.A.'s foreign and local currency Issuer Default Ratings (IDRs) at 'BBB+' and long-term national scale rating at 'AA(cl)'. In addition, Fitch has affirmed Enersis' short-term national scale rating at 'N1+/AA(cl)'. These rating actions affect approximately USD251 million of outstanding Yankee bonds and USD51 million of domestic bonds. The Rating Outlook is Stable.
Fitch also affirmed Enersis' national Equity Rating at 'Primera Clase Nivel 1 (cl)'. The rating is based on the company's significant market capitalization in comparison with other equities in the stock exchange. As of July 2014, Enersis' shares demonstrate high liquidity, with a market capitalization of USD16.805 billion. The shares have 100% presence in the Santiago Stock Exchange, and an average trading volume for the rolling 12 month period of USD7.816 million.
KEY RATING DRIVERS
Enersis' ratings reflect its solid business platform with a strong degree of business and geographic diversification, and solid financial/operational metrics. The company's distribution business represents 43% of EBITDA providing a degree of earning stability as it operates under supportive regulatory environments. Geographic diversification through Latin America provides a natural hedge to different regulations, weather conditions and economic situations. The Stable Outlook is driven by Enersis' adequate liquidity profile and credit metrics and the expectation that a balanced mix between generation and distributions businesses will be maintained.
Credit risks associated with the company include pressures from the shareholder Enel S.P.A. (Italy: rated 'BBB+'; Stable Outlook by Fitch) to promote any extraordinary dividends, possible environmental and/or political issues that could result in cost overruns or modifications of projects under construction; although these risks appear manageable. The ratings also consider the company's dependence on dividend payments from its subsidiaries to repay its own debt and incorporate the seasonal and regional cash flow volatility.
Enersis enjoys a strong business platform underpinned by a balanced portfolio of regulated and non-regulated activities and a well-diversified geographic presence. Consolidated EBITDA streams in the YTD June 2014 period are well diversified amongst Peru (17%), Chile (17%), Colombia (43%) and Brazil (26%).
Historically Enersis' cash generation has been close to evenly split between its power generation and power distribution businesses, however in the YTD June 2014 period Generation and Distribution represented 57% and 43% of consolidated EBITDA respectively. This mix change can be attributed to difficult year-over-year (YoY) comparisons in its Argentine distribution business and elevated energy costs negatively impacting Brazilian distributors.
In the generation business, operations are concentrated in its subsidiary, Endesa Chile (IDR rated 'BBB+'). Enersis generation business' conservative commercial policy is a key strength to reduce the company's exposure to hydrology risk as hydropower generation represents 52% of its generation matrix as of June 2014.
On the distribution side of the business, the cash flow stability and reliability of Enersis' regional distribution companies is sound, yet distributions to the holding company can at times be difficult to predict as they might be subject to legal restrictions of each country and the willingness of the other shareholders to distribute operating cash. EBITDA generation in this business segment is also well-distributed geographically between Chile (25%), Brazil (36%), and Colombia (39%). The company's major distribution subsidiaries include Chilectra S.A. (Chile), Ampla (Brazil), Coelce (Brazil) and Codensa (Colombia), who each have substantial market share in their respective countries.
As of the last twelve months (LTM) June 2014 period, the company registered adjusted EBITDA of USD3.8 billion, which is 15% below full-year 2013 figures. The company has been negatively impacted by difficult year-over-year comparisons in its Argentine business unit given a USD398 million one-time positive effect in 2013 versus 2014 results. In addition, the persistence of drought conditions in Brazil have led to elevated energy spot prices for which the company is still awaiting payment from the regulatory authorities.
Strong Credit Metrics
Despite the difficulties encountered so far in 2014, Enersis maintains strong credit metrics with an LTM June 2014 EBITDA-to-interest ratio of 4.7x and net debt-to-EBITDA of 1.3x. Leverage defined as Total Debt: Adjusted EBITDA rose slightly during this period to 1.8x versus 1.6x as of year-end 2013. Adjusted EBITDA for the latest 12 months was USD3.8 billion and free cash flow was positive after capital expenditures of approximately USD1.3 billion and consolidated dividends payments of USD1.25 billion. Free Cash Flow of USD329 million remains positive, though it is down significantly versus the last three year average of USD1.1 billion in free cash flow generation. Enersis' individual dividend payments are in the range of USD600 - 700 million per year.
Fitch expects Enersis to moderately increase its EBITDA to a level of USD4.0 billion in 2015 - 2018, mainly due to the organic growth at both its power distribution and generation segments and a normalization of Brazilian operations. EBITDA at its generation business unit are expected to remain stable at USD2 billion in 2014 and increase in 2015 after the Quimbo power plant begins to operate. Consolidated capital expenditures are estimated to increase to approximately nearly USD2 billion, during the next few years and are expected to be funded with the company's own cash flow generation. Should this level of capex materialize, free cash flow is expected to slightly positive to break even.
Enersis' credit profile is supported by ample consolidated liquidity with USD2.8 billion of cash as of June 2014 and access to a USD768 million of committed credit lines and 856 million of uncommitted lines. Consolidated long-term debt maturities are manageable with USD776 million in short-term debt. Fitch expects the company will refinance a portion of its debt maturities. In the short to medium term, Fitch is forecasting for interest coverage, as measured by adjusted EBITDA-to-interest to be near 7.0x and leverage as measured by total debt-to-EBITDA to remain around 2.0x, between 2014 - 2017.
Manageable Investment Program
After the company concluded its capitalization process in 2013, Enersis' management announced a USD9 billion capex plan for 2014 - 2018, of which USD3.3 billion were expected to be invested in Chile and USD5.7 billion would be invested throughout the region. In 2014, the company disclosed it will be spending capex of approximately USD9.1 billion on a consolidated basis during the 2014 - 2018 period. No further details have been provided about the timing and type of investments, though the company expects the investment mix between Chile and other countries to be 27%:73%. Fitch will monitor the impact of these investments in Enersis credit profile, as the details are announced.
A change in Enersis' power generation business' commercial policy that results in an imbalanced long-term contractual position, and/or a material and sustained deterioration of credit metrics (reflected in a Debt to EBITDA ratio greater than 3x and EBITDA to interest coverage below 4x) could result in a negative rating action.
A material improvement in credit metrics that could be sustained over time, reduction in debt levels and in pressure from shareholders to distribute dividends could result in a positive rating action. Sustained gross debt to adjusted EBITDA ratios in the 1.5x level would be viewed positively.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May. 28, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage