Buenos Aires City, August 21, 2012 -- Moody's affirmed Ancap's Ba2 Corporate Family Rating (CFR).
The rating remains unchanged in spite of our lowered assessment on Ancap's
BCA (Baseline Credit Assessment) that has been changed to B2 from B1.
The outlook is stable.
Rating Rationale
The downgrade of Ancap's BCA principally reflects a weaker stand-alone
credit profile derived mainly from the company's increased leverage,
that we believe will persist at a high level for a considerable period
of time. Weak and volatile profits over recent quarters that are
expected to continue also underpinned the downgrade.
Since Ancap is 100% owned by the Uruguayan state, Ancap is
a government related issuer (GRI) and its Ba2 Corporate Family Rating
reflects Moody's rating methodology for Government-Related Issuers
published in July, 2010.
Moody's methodology for GRIs incorporates the company's stand-alone
credit risk profile or Baseline Credit Assessment, which is a representation
of the company's credit quality before taking into account any government
support. The BCA of a GRI is expressed on a 1-21 scale,
where one represents the equivalent risk of an Aaa, two an Aa1,
three an Aa2 and so forth.
Ancap's BCA of 15 (mapping to a B2 rating) is underpinned by its monopoly
position in the refining and wholesale marketing operations within Uruguay.
Those relative strengths are tempered by the relatively high debt levels
that the company has incurred to develop its investment plan. As
of December 2011, ANCAP's total debt amounted to $750 million
(currency references are to US dollars), the equivalent of $1,800
per complexity barrel. During recent years Ancap's leverage has
increased substantially over its historical levels and although we expect
debt levels to stabilize after its investment program in La Teja finalizes
in 2012, leverage will remain relatively high for the foreseeable
future. We expect leverage (Debt to EBITDA in the 5 - 6x
range) to remain high even after the company reduces its total outstanding
debt in approximately $200 million due to its prepayment to PDVSA.
The BCA also considers the company's relatively small size, particularly
in the context of its exposure to volatile and cyclical commodity prices,
dependence on crude oil imports as well as its reliance on a single refinery.
Ancap's crude distillation capacity of 50,000 bpd at a single complex
(La Teja) raises concentration and operating risk issues.
Ancap's Ba2 CFR is based on its BCA of 15; medium dependence,
reflecting the moderate degree of correlation between factors that could
lead to financial stress on Ancap and the government at the same time;
and a high probability of extraordinary support from the Government of
Uruguay to the GRI. The government of Uruguay's ability to provide
support to Ancap is measured by its Baa3 local currency rating.
The outlook of the government of Uruguay's rating is positive.
We consider the government's willingness to support the company as high,
based on Ancap's 100% ownership by the government, the company's
monopoly status for refining activities in Uruguay and its strategic importance
to Uruguay's economy and national security. We believe the recent
announcement that the government will provide Ancap with the funding necessary
to prepay PDVSA's debt reinforces our assessment of a high degree
of support.
Liquidity Profile
Ancap has an adequate liquidity position. As of December 2011,
cash on hand was approximately $150 million, which covered
half of its short term debt maturities. Ancap's main maturities
in the foreseeable future include short term bank loans and maturities
under PDVSA's financing. We believe Ancap's cash flow will remain
subject to the volatility of commodity prices; furthermore,
we anticipate the company's capital spending program will remain for the
rest of the year. Therefore Ancap will need to roll-over
its short-term bank loans and although it does not have access
to committed credit facilities, as a government owned entity it
has ample access to local and international bank financing in Uruguay.
During the first half of 2012 Ancap was able to roll-over most
of its short term bank debt maturities on average for six months.
The stable outlook reflects our expectation that Ancap's financial performance
over the medium term is likely to improve as a result of the recovery
of its profitability and debt reduction. The stable outlook incorporates
a more reasonable pricing for Ancap's refined product sales to the
internal market. The stable outlook also considers that implicit
support from the government will no change.
Given ANCAP's current debt levels, pending investments and
expected cash generation, an upgrade to its BCA is not likely on
the short to medium term.
Longer term, an upgrade to Ancap's BCA would require not only more
stable and efficient operations but also increased scale and diversification
together with a more conservative leverage (debt/complexity barrels below
$625). An upgrade of Uruguay's ratings could also add upward
rating pressure on ANCAP's Corporate Family Rating.
However, if Ancap's margins don't improve as expected and debt continues
increasing after the refinery investment is finished in 2012, the
BCA rating or outlook could come under downward pressure. Given
Uruguay's current Baa3 rating and positive outlook, a downgrade
on the BCA will not necessarily translate in a downgrade on Ancap's
Ba2 Corporate Family Rating.
Administración Nacional de Combustibles, Alcohol y Portland
(Ancap) is Uruguay's state-owned oil company with a monopoly position
in refining and wholesale marketing within Uruguay. Ancap owns
Uruguay's only refinery (La Teja), with a Nelson complexity rating
of 8 and a crude distillation capacity of 50,000 barrels per day.
The company is also engaged in the production of cement -50%
market share- and it is the largest company in Uruguay, with
total assets of approximately $2.7 billion under Uruguayan
GAAP as of December 2011.
The principal methodology used in this rating Ancap was the Global Refining
and Marketing Industry Methodology published in December 2009.
Other methodologies used include the Government-Related Issuers
methodology published in July 2010. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
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Daniela Cuan
Senior Analyst
Infrastructure Finance Group
Moody's Latin America
Ing. Butty 240
16th Floor
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Argentina
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Steven Wood
MD - Corporate Finance
Corporate Finance Group
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Moody's affirms Ancap's Ba2 CFR and lowers BCA to B2
