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Rating Action:

Moody's affirms Puma Energy's CFR at Ba2, upgrades the rating on the notes to Ba2, stable outlook

31 Oct 2016

London, 31 October 2016 -- Moody's Investors Service, ("Moody's") has today affirmed Puma Energy Holdings Pte. Ltd ("Puma Energy" or "Puma")'s corporate family rating (CFR) at Ba2 and probability of default rating (PDR) at Ba2-PD. Concurrently, Moody's has upgraded the rating on the senior unsecured notes due 2021 to Ba2 from Ba3. These notes are issued by Puma International Financing S.A. and are guaranteed by Puma Energy, Puma Energy Group Pte. Ltd. and Puma Corporation S.a r.l. The outlook on all ratings remains stable.

RATINGS RATIONALE

The affirmation of the Ba2 CFR reflects the positive characteristics of Puma Energy's business profile, which benefits from a high level of vertical integration between its midstream and downstream oil activities, leading market positions in the various countries in which it operates and significant diversification in terms of geographies, customer base and end-industry exposure. The upgrade of the rating on the senior notes due 2021 to Ba2 from Ba3 reflects the shift of the funding strategy of the group towards HoldCo debt as evidenced by the reduction in OpCo debt versus HoldCo debt from 75% in Dec 2013 to 17% in June 2016 and reduction of secured debt versus total debt from 65% in Dec 2013 to 5% in June 2016. This reduces the amount of priority debt at various operating subsidiaries of the group, effectively ranking the bondholders pari passu with debt at the OpCo level.

Moody's also views positively the development of Puma's global sourcing platform, sizeable and strategically located storage capacity and import terminals and extensive retail and distribution networks, which generate significant economies of scale and underpin the efficiency of the group's supply chain and cost base. Puma Energy further benefits from its strong relationship with Trafigura (unrated), its major shareholder with a 49.8% stake and also a supplier of approximately two-thirds of the refined oil products distributed and marketed by Puma Energy, which underpins Puma's reliability and consistent quality of its supplies.

Moody's believes that the company should be able to grow organically in 2017-18 and reap the benefits of high capex and acquisition spend in the past years, more specifically, the acquisition of petroleum assets in the UK, bitumen assets in Australia, aviation business in Puerto Rico and the acquisition of retail distributors in South Africa, Colombia and Peru in 2015. Moody's expects Puma to remain free cash flow (FCF) negative in 2016, however the company should be able to generate marginal positive FCF in 2017 and around $200-250 million in 2018, assuming the company reduces its capex in 2017-18 from its historic high levels and no major acquisitions. Moody's adjusted debt/EBITDA ratio is expected to peak at around 4.5x in 2016, however, should reduce to around 4.3x in 2017 and below 4.0x in 2018, assuming reduced capex and acquisition spending.

The Ba2 rating also reflects Puma's dominant presence in emerging markets mainly in Africa, Latin America and Asia-Pacific, which tend to display higher country and business risks. However, the company should also benefit from the favourable demographics and rising living standards in these regions which drive above-average growth in demand for refined oil products. The rating also reflects the company's fuel distribution activities inherently exposed to the price volatility of refined oil products, which impacts its cost of sales and an acquisition-led growth strategy that increases execution and leverage risk. However, Puma Energy largely operates in fully or partly regulated markets with margin protection and in free markets where it hedges its price exposure, which supports the resilience and stability of operating profits and cash flow generation. In addition, the group regularly upstreams cash flows from local operating subsidiaries via collection of trade receivables related to oil product and equipment supplies, rather than relying solely on dividends.

Liquidity

Moody's considers the liquidity profile of Puma Energy as adequate. The company has access to $1.55 billion under its Senior Facility Agreement (SFA) and $1.2 billion of undrawn committed credit facilities as of June 2016, which includes availabilities under the SFA and other credit facilities. In addition to this, the company has access to $1.5 billion of shareholder loan from Trafigura, fully undrawn as of June 2016, out of which $500 million is a committed RCF and $1.0 billion is an uncommitted RCF. The company's internal cash flow generation combined with its cash balance of $326 million as of June 2016 and availabilities under its credit facilities should be sufficient to fulfil its liquidity needs in the coming 18 months.

Puma Energy's working capital requirements (including margin calls) are subject to fluctuating refined oil product prices. In this context, Moody's views the group's limited access to multi-year committed bank facilities as a constraining factor on its liquidity which is mitigated to some extent by the liquid nature of the collateral.

Structural Considerations

The upgrade of the rating on the senior notes to Ba2 from Ba3 reflects the pari passu ranking of the bondholders to other debt at various operating subsidiaries of the group. It reflects the shift of the funding strategy of the group towards HoldCo debt as evidenced by the reduction in OpCo debt versus HoldCo debt from 75% in Dec 2013 to 17% in June 2016 and reduction of secured debt versus total debt from 65% in Dec 2013 to 5% in June 2016. The Ba2 rating also reflects that this shift towards HoldCo debt will increase as $345 million of OpCo debt will mature in the coming 12 months. This change in the funding strategy reduces the amount of priority debt at various operating subsidiaries of the group, effectively ranking the bondholders pari passu with debt at the OpCo level.

Rating Outlook

Moody's adjusted debt/EBITDA ratio is expected to peak at around 4.5x in 2016 and subsequently fall below 4.0x. The stable outlook reflects Moody's expectation that Puma Energy should be able to improve FCF generation due to organic growth and lower capex requirements in 2017 which should help in deleveraging. The outlook also reflects the ongoing support from the shareholders for Puma's growth strategy demonstrated historically by injection of equity.

What Could Change the Rating - Up

Continued expansion and diversification geographically with positive FCF generation and sustained Moody's adjusted debt/EBITDA reduction below 3.5x could lead to an upgrade. Given inter-linkages between Puma Energy and its shareholders, any upgrade would also have to be considered if there is a change in the shareholder support currently enjoyed by Puma.

What Could Change the Rating - Down

The Ba2 rating could however come under pressure should (i) Puma Energy's financial performance be materially affected by some deterioration in operating conditions in some of its major geographies and/or (ii) its financial leverage increase significantly as a result of debt funded growth investments, which would result in Moody's adjusted debt to EBITDA exceeding 4.0x times for a prolonged period of time.

The principal methodology used in these ratings was Global Midstream Energy published in December 2010. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Puma Energy Holdings Pte. Ltd ("Puma Energy") is an integrated midstream and downstream oil products group active in Africa, Latin America, North East Europe, the Middle East and Asia-Pacific. Trafigura Beheer BV, a global commodity and logistics firm, established Puma Energy in 1997 as a storage and distribution network in Central America, and the company has since grown into a global network operating across 47 countries worldwide, with approximately 7.8 million m3 of storage capacity and a network of approximately 2,419 retail service stations across Africa, Latin America, and Australia. In the twelve months to the end of June 2016, Puma Energy sold over 21 million m3 of oil products and its facilities handled almost 19.4 million m3 of petroleum products.

Trafigura (not rated), a global commodities trader, continues to own 49.8% of Puma Energy. Sonangol (not rated), the state oil company of Angola, is the other major shareholder with a 27.8% stake, Cochan Holdings LLC owns 15.5% and the remaining is owned by private investors.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Shruti Kulkarni
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Anke N Richter, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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