New York, October 28, 2021 -- Moody's Investors Service, ("Moody's") has
upgraded Administracion Nacional de Combustibles-ANCAP´s
(ANCAP) Corporate Family Rating to Ba1 from Ba2. Moody's also raised
the company's Baseline Credit Assessment (BCA) to b2 from b3. The
outlook is stable.
RATINGS RATIONALE
The raising of ANCAP's BCA (a measure of the issuer's intrinsic risk regardless
of its controlling entity) to b2 from b3 reflects the company's
sustained improvement in financial and operating performance. ANCAP
has been able to consistently reduce its financial liabilities from $635
million in 2017 to around $363 million as of June 2021, which
has decreased leverage as measured by gross debt to Moody's adjusted
Ebitda ratio to 2.3x as of the last twelve months ended in June
2021 from 4.3x in 2017, and interest coverage, as measured
by metrics EBIT to interest expense, to around 6x from 3.5x
in the same period.
The company's operating performance has improved on the back of increasing
efficiencies and expense reductions. Fuel prices were virtually
frozen since 2018 up until mid-2021; but starting July 2021
new fuel price adjustments based on import-parity prices will provide
more visibility to the company's profitability margins and reduce
the company's exposure to crude oil volatility. Profitability
at ANCAP is mainly driven by its ability to pass through the cost of crude
and local currency devaluation to final prices. Despite high crude
oil volatility and virtually frozen fuel prices for a prolonged period,
ANCAP has maintained good profitability levels, with EBITDA margin
as adjusted by Moody's at around 10%-13% in
the 2017-2021 period.
Uruguay has no oil reserves or resources and therefore the country's energy
supply is reliant on imported crude oil. ANCAP has never faced
procurement restrictions for its refinery and has a diversified base of
crude supply.
ANCAP's b2 BCA is supported by its monopoly position in refining and dominant
position in wholesale marketing in Uruguay. However, the
BCA also considers the company's 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. In addition, ANCAP's small crude distillation capacity
of 50,000 bpd at a single complex (La Teja) and its average 80-85%
utilization rate raise concentration and operating risk issues.
Since ANCAP is 100% owned by the Government of Uruguay (Baa2 stable),
it is considered a government related issuer (GRI) under Moody's methodology
for such entities. ANCAP's Ba1 Corporate Family Rating is based
on its BCA of b2, high dependence, reflecting the high 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. The government's
willingness to support the company is based on its 100% ownership
of ANCAP's, the company's monopoly status for refining activities
in Uruguay, and its strategic importance to Uruguay's economy and
national security. In addition, the government's ability
to provide support to ANCAP is measured by its Baa2 rating with a stable
outlook. The high support assumption embedded in ANCAP's Ba1 rating
has been evidenced since 2013, when the government granted a $500
million equivalent loan to the company, which at the time replaced
half of ANCAP's total outstanding debt to third parties. In addition
and most importantly, in early 2016 the government capitalized the
equivalent of $622 million in debt to ANCAP's equity, reducing
its debt by 43% from 2015 levels.
ANCAP's liquidity is adequate. Cash balance as of June 2021 of
UYU9,677 million ($225 million) plus expected cash flow from
operations in the next 12 months of about UYU3,500 million should
be more than enough to cover the company's basic needs including capital
investments and short -term debt of UYU5,256 million.
The company does not have committed credit facilities, although
as a government owned entity it has ample access to local and international
bank financing in Uruguay. Also, the company has an uncommitted
credit facility of around $100 million with the state-owned
bank Banco de la República Oriental del Uruguay.
The stable rating outlook reflects the Moody's expectation that ANCAP
will be able to sustain current operating and credit metrics over the
short to medium term given the company's disciplined financial management
and its commitment towards maintaining healthy debt levels.
Administracion Nacional de Combustibles-ANCAP (ANCAP), fully
owned by the Government of Uruguay, has a monopoly position in refining
and a dominant position in fuel wholesale marketing in the country.
It 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. ANCAP is the largest company in Uruguay, with revenue
of $1.6 billion and total assets of $1.5 billion
as of the 12 months ended June 2021. The company also has a cement
company, among other smaller businesses, which in aggregate
represent around one-tenth of its consolidated revenue.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
ANCAP's ratings could be upgraded if the company not only maintains debt
leverage at current levels but also strengthens its liquidity position
further to the point to protect its credit quality from earnings volatility.
An upgrade of Uruguay's ratings could also add upward rating pressure
on ANCAP's rating.
Conversely, if the company's EBITDA loses traction and debt leverage
increases with limited prospects of a quick reversal, its ratings
could be downgraded. A negative action on Uruguay's rating could
also prompt a negative action on the company's rating.
The methodologies used in these ratings were Refining and Marketing published
in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277301,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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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
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
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Maria Gallardo Barreyro
Vice President - Senior Analyst
Corporate Finance Group
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Marcos Schmidt
Associate Managing Director
Corporate Finance Group
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