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01 Jul 2019
New York, July 01, 2019 -- Moody's Investors Service ("Moody's") has assigned
a B2 rating to Pampa Energía S.A.'s ("Pampa") proposed
senior unsecured notes. The outlook is stable.
Net proceeds from the proposed issuance will be used for liability management,
capital spending, working capital and/or make capital contributions
to certain subsidiaries or affiliates.
The rating of the proposed notes assumes that the final transaction documents
will not be materially different from draft legal documentation reviewed
by Moody's to date and assume that these agreements are legally valid,
binding and enforceable.
Issuer: Pampa Energía S.A.
- Senior unsecured notes: B2
Pampa's B2 ratings are supported by the company's diversified portfolio
of operations, with upside potential in the power industry in Argentina,
a benign pricing framework for natural gas and power sectors in Argentina
and good credit metrics for its rating category pro-forma for the
proposed notes. The ratings are mainly constrained by Pampa´s
exposure to Argentina's volatile and highly-regulated environment
in the power and gas industries. We expect Pampa's capital
spending on natural gas projects and power capacity expansions to add
significant growth to operations in 2019-20. Nevertheless,
this could limit free cash flow growth in the period. Also,
these factors are mitigated by the company's strategy to focus on power
generation projects with positive pricing outlooks, where the company
is an integrated electricity producer, as it procures natural gas
from its own upstream operations. At the same time, the company
has moderate exposure to foreign exchange risk.
Pampa plans to spend $700 million on its investment plans in 2019,
including expanding its power generation capacity by 13% or 504
megawatts (MW) to 4,375 MW by 2020, mainly through 383 MW
additional thermal capacity at Genelba in 2019-20 worth $350
million and 106 MW in two wind farms worth $137 million in 2019-20
(Pepe II inaugurated in March 2019). The company's 3,871
MW power generation capacity as of March 2019 (3,977 MW today) represented
about 11% of Argentina's total. Around 75%
natural gas from Pampa's upstream business is used to procure its
own thermal power plants. Furthermore, the recent joint acquisition
of Pampa and YPF S.A. of the Ensenada de Barragán
Thermal Power Plant (CTEB) will further integrate Pampa's gas and
electricity segments. During the next 30 months CTEB will be converted
into a combined cycle with 847 MW capacity, up from 567 MW today,
with higher efficiency, as CTEB will generate 50% more electricity
with the same fuel consumption (natural gas).
Around 35% of Pampa's investments will support Exploration
and Production operations. As of the first-quarter ended
in March 2019, natural gas represented 89% of the company's
oil and gas production at 7.0 million cubic meters per day (MMm3/d),
while oil's was at 5.4 thousand barrels per day (Mbbl/d).
Its main natural gas projects are El Mangrullo and Sierra Chata,
operated by Pampa, and Rio Neuquén and Rincon Mangrullo,
operated by YPF S.A., which together comprise 200,000
in net acreage in the Neuquina basin for Pampa. As of December
2018, the company had proved oil and gas reserves of 130 million
barrels of oil equivalent (MMboe), equivalent to a reserve life
of 7.9 years with a reserve replacement ratio of 131%.
Pampa's liquidity profile is good and will improve pro forma the
new notes issuance, with no significant maturities until 2023.
As of March 2019, Pampa's cash balance of $546 million
was above $366 million in debt coming due in 2019-20 ($50
million in debt already redeemed since), mainly composed of bank
debt. Around 89% of the company's costs and 75%
of capital spending are denominated or linked to the US dollar and,
pro forma for the proposed notes issuance, around 94% of
the company's debt will be denominated in US dollars. However,
close to 90% of Pampa's revenues are generated or linked to the
US dollar, along with almost all of its cash holdings.
Since December 2017 Pampa has reduced its total reported debt by $1.3
billion, to $2.0 billion as of March 31, 2019,
aided by its cash generation from operations but also by over $500
million in divestment of non-core assets. The company's
debt burden will not be materially increased pro forma the notes'
issuance and will lower as the company pays down debt maturities in the
next 12-18 months. Accordingly, we estimate adjusted
debt to EBITDA ratio will remain around 2.0x in fiscal year ending
December 2019, up from 1.8x as of March 2019. Similarly,
retained cash flow (cash from operations before working capital requirements
but after dividends) to debt ratio was at 21% as of March 2019,
and we expect it will remain around this levels in 2019-20.
Moody's expects the company's adjusted EBITDA to interest expenses will
remain above 3.0 times in 2019-20.
The stable outlook for Pampa's ratings reflects our expectation
that the company will maintain stable cash generation based on solid electricity
tariffs and adequate natural gas prices. We believe that Pampa's
credit metrics relative to its debt burden and interest coverage will
remain in line with its rating category within the next 12 to 18 months.
Pampa's ratings could be upgraded (1) if retained cash flow to total
debt ratio is higher than 50%; (2) if EBITDA to interest expense
ratio is above 5.0x on a sustained basis. If there is an
upgrade on the government of Argentina's B2 rating this would not necessarily
translate into an immediate upgrade of Pampa's ratings.
The ratings could be downgraded (1) if Pampa materially increases its
leverage, with retained cash flow to total debt lower than 10%;
(2) if its interest coverage as measured by EBITDA to interest expense
ratio declines below 2.0x; (3) if there is a deterioration
in the company's liquidity profile; (4) if the government of Argentina's
B2 rating is downgraded.
Pampa is an energy company in Argentina, engaged in generation,
distribution and transmission of electric power, as well as in oil
and gas production, and petrochemicals and hydrocarbon commercialization
and transportation. In the generation segment, the company
has an installed capacity of 3,871 MW as of March 2019, and
additional 504 MW under construction, which accounts for about 10%
of Argentina's installed capacity. In the distribution segment,
Pampa has a controlling interest in Edenor, the largest electricity
distributor in Argentina, which has around three million customers
and a concession area covering the northern and northwest part of Buenos
Aires. In the O&G segment, Pampa is one of the leading
oil and natural gas producers in Argentina, with operations in 11
production areas and seven exploratory areas. Its main natural
gas production blocks are located in the provinces of Neuquen and Rio
Negro. In the petrochemicals segment, Pampa owns three high-complexity
plants producing a wide variety of petrochemical products, including
styrenics and synthetic rubber. Finally, the company has
a small participation through joint ventures in the electricity and gas
transportation and distribution businesses
The principal methodology used in this rating was Independent Exploration
and Production Industry published in May 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
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Martina Gallardo Barreyro
Asst Vice President - Analyst
Corporate Finance Group
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