SANTIAGO, Chile--(BUSINESS WIRE)--Empresas Copec ('BBB'/'AA-(cl)'/Stable Outlook) recently announced a regional agreement to elaborate and distribute Mobil lubricant in Colombia, Peru and Ecuador, and to acquire all the assets related to this business, valued at USD747 million. This transaction is viewed by Fitch Ratings as neutral for Empresas Copec's credit quality, as the resulting pro forma increase to 3.0x of the company's net leverage remains in line with the current ratings.
Compania de Petroleos de Chile Copec S.A., a fully owned subsidiary of Empresas Copec has signed an agreement with ExxonMobil to elaborate and distribute Mobil lubricant in Colombia, Peru and Ecuador. In addition, the agreement includes the commercialization of fuel for the international airport in Lima, Peru, and the current ExxonMobil fuel business in Colombia and Ecuador. The transaction includes all the assets related to these operations. Empresas Copec intends to resell the acquired fuel business in Colombia in order to comply with free trade authorities, considering the market share they currently hold.
The operations being acquired hold no debt and include cash and equivalents for USD235 million. Empresas Copec expects to finance this transaction with its own liquidity and with new debt. On a pro forma basis after the transaction, Fitch Ratings estimates that Empresas Copec's net leverage measured as total net debt/EBITDA would remain moderate, reaching 2.8x as of December 2016, 3.0x as of December 2017 and 2.7 as of December 2017. For the last 12 months as of June 30, 2016, Empresas Copec reported an EBITDA, gross debt and cash of USD1.8 billion, USD6.5 billion and USD1.6 billion, respectively. Net debt/EBITDA reached 2.7x.
Fitch views this acquisition as in line with Empresas Copec's strategy of using its financial flexibility to inorganically grow its core businesses by expanding geographically. This transaction follows the LPG assets acquired in Peru and Ecuador last April by Abastible and MAPCO's service stations acquired in U.S. last August. By the end of these transactions, Fitch's expects Empresas Copec's gross debt to reach USD7 billion.
The acquisitions made in 2016, including the one just announced, leave Empresas Copec little head room for new inorganic growth or to face further economic downturns. Should the company continue investing inorganically and putting pressure on its credit metrics beyond Fitch expectations for the rating category, a negative rating action could be triggered. Fitch considers net leverage above 3.0x for a sustained period would be inconsistent with a 'BBB' rating.
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