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Rating Action:

Moody's assigns a Ba2 CFR to Puma Energy Holdings Pte Ltd; outlook stable

Global Credit Research - 17 Jan 2014

London, 17 January 2014 -- Moody's Investors Service has today assigned a corporate family rating (CFR) of Ba2 and a probability of default rating (PDR) of Ba2-PD to Puma Energy Holdings Pte. Ltd (Puma Energy or the company). Concurrently, Moody's has assigned a (P)Ba3 rating with a loss given default assessment of LGD5 (71%) to the senior notes maturing in 2021 (the Notes) to be issued by Puma International Financing S.A. and guaranteed by the company, Puma Energy Group Pte Ltd and Puma Corporation S.à.r.l. The outlook on the ratings is stable. This is the first time Moody's has assigned ratings to the company.

The proceeds from the notes will be used to partially repay certain outstanding debt and to finance the group's future development.

Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the Notes. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

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 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.

Moody's views positively Puma Energy's integrated business model, which is underpinned by a global sourcing platform, sizeable and strategically located storage capacity and import terminals, and extensive retail and distribution networks, which afford 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, which remains its major shareholder with a 48.8% stake despite recent sell-downs. The procurement from Trafigura of approximately two-thirds of the broad range of refined oil products distributed and marketed by Puma Energy further underpins the reliability and consistent quality of its supplies.

Puma Energy's fuel retail and distribution activities display significant geographical diversification, with operations spanning across 38 countries around the world. The majority of the group's operations are located in emerging markets, which tend to display higher country risk profiles owing to more unstable and unpredictable institutional frameworks as well as volatile macro-economic conditions.

However, Puma Energy should also benefit from its strong focus on developing regions such as Latin America, Africa and Asia-Pacific, where favourable demographics and rising living standards drive above-average growth in demand for refined oil products. Puma Energy's capacity to actively contribute to improving energy infrastructure in countries where fuel distribution systems are under-developed supports its status as a favoured partner in many of its host countries, whose governments are striving to improve the reliability of fuel distribution and quality of refined oil products across their respective territories. This gives host governments a strong incentive to promote and maintain supportive regulatory regimes.

While the local currencies of emerging market economies are subject to heightened volatility and their convertibility may, in some instances, be subject to restrictions, Puma Energy has significant flexibility in upstreaming cash within the group through the collection of trade payables (including margins built into transfer pricing and adjustments to payment terms) owed by its local distribution and retail subsidiaries to its supply entities procuring refined oil products and equipment. In addition, distribution and retail subsidiaries typically hedge their sales revenues denominated in local currency by contracting local currency borrowings to fund their oil product inventories.

The rating also reflects the fact Puma Energy's fuel distribution activities are inherently exposed to the price volatility of refined oil products, which impact its cost of sales. However, there are a number of mitigating factors that help protect Puma Energy's gross margins and ensure the resilience of its operating profitability and cash flow generation capacity.

Notably, in countries where the distribution of refined oil products is regulated, Puma Energy is typically entitled to earn a maximum margin on its sales (often denominated in US dollars) over and above the prevailing cost of its fuel supplies. In free markets, the group systematically hedges its price exposure, even though it generally has the ability to pass price increases onto customers owing to the relative price inelasticity of fuel consumption and its leading market shares, which help underpin its competitive position.

The growth strategy pursued by Puma Energy, as it seeks to capitalize on the retrenchment of global oil majors from retail and marketing activities in developing markets to expand its geographical footprint, entails a degree of execution risk and may lead to some increase in financial leverage as a result of debt-funded acquisitions and greenfield infrastructure projects.

This is somewhat mitigated by the sound track-record established by the company in recent years at managing capital projects and integrating acquired businesses as well as the positive impact such strategy should have on its geographical profile going forward. Also, Moody's notes that a large component of Puma Energy's debt is contracted under borrowing base facilities to finance the acquisition of refined oil product inventories, and is as such self-liquidating.

Puma Energy's working capital requirements (including margin calls) are subject to fluctuations in 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 profile. That said, Moody's acknowledges that the uncommitted nature of Puma Energy's borrowing base facilities, on which it relies to fund inventory purchases, is somewhat mitigated by the positive characteristics (in terms of value and liquidity) of the collateral backing up borrowings. In addition, the forthcoming issuance of senior bonds should benefit Puma Energy's overall liquidity position.

The notching to Ba3 of the indicative rating assigned to the planned bond issue of Puma Energy Holdings Pte. Ltd reflects the degree of structural subordination affecting the relative ranking of the bondholders as a result of the existence of secured financings and classes of priority debt at various discrete operating subsidiaries of the group (including borrowing base and acquisition/project-related financing facilities).

The stable outlook reflects Moody's belief that Puma Energy's operating profitability and cash flow generation will continue to be underpinned by the supply chain efficiencies and economies of scale derived from its integrated business model and strong market positions as well as relatively stable operating conditions across the various geographies in which the group operates. This is also predicated on Moody's expectation that Puma Energy will accommodate its growth strategy within the prudent financial framework set out by management, which should ensure that debt to EBITDA (as fully adjusted by Moody's) does not exceed four times for any extended period of time. [This ratio includes all of Moody's standard adjustments and borrowing base inventory financing. It therefore differs from Puma Energy's reported total net debt (excluding inventory financing) to EBITDA.]

WHAT COULD CHANGE THE RATING UP/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 debt to EBITDA exceeding four times for a prolonged period of time.

While Moody's does not see any near-term upgrade pressures, the continuing expansion and diversification of the company's geographical footprint combined with some sustainable strengthening in its financial profile could lead to positive momentum developing on the Ba2 rating. Given the interlinkages that exist between Puma and its shareholders, an upgrade would also have to be considered in the context of how the credit risk profiles of its major shareholders evolve over time.

The principal methodology used in these ratings was the Global Midstream Energy published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Puma Energy is an integrated midstream and downstream oil group active in Africa, Latin America, North East Europe, the Middle East and Asia-Pacific. Puma Energy operates across 38 countries worldwide, owning and operating approximately 4.6 million m3 of storage capacity and operating a network of approximately 1,600 retail service stations across Latin America, Africa and Australia. In the twelve months to the end of September 2013, Puma Energy sold over 12.3 million m3 of oil products and its facilities handled over 20.1 million m3 of petroleum products

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 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 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 rating action, and whose ratings may change as a result of this 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.

Francois Lauras
VP - Senior Credit Officer
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

David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

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

Moody's assigns a Ba2 CFR to Puma Energy Holdings Pte Ltd; outlook stable
No Related Data.

 

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