Fitch Ratings has affirmed Empresas Copec S.A.'s ratings as follows:
--Foreign and local currency Issuer Default Ratings (IDRs) at 'BBB';
--Senior unsecured bond line No. 623 and bond program at 'AA-(cl)';
--Senior unsecured bond line No. 624 and bond program at 'AA-(cl)';
--Senior unsecured bond line No.791 and bond program at 'AA-(cl)';
--Senior unsecured bond line No.792 and bond program at 'AA-(cl)';
--Long-term national scale at 'AA-(cl)';
--National Equity Rating at 'Primera Clase Nivel 1'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Empresas Copec's ratings reflect the strong business positions and sound
credit profile of its main operating subsidiaries Celulosa Arauco y
Constitucion S.A. (Arauco, IDR rated 'BBB'/Stable; National Rating
'AA-(cl)' by Fitch), Compania de Petroleos de Chile S.A. (Copec) and
Abastecedora de Combustibles S.A. (Abastible). The company also
participates in natural gas distribution, and the mining industry
through minority investments in several companies and joint ventures.
Moderate Improvement of Financial Performance
Empresas Copec generated USD2.1 billion EBITDA during the LTM in June
2015, which is relatively stable when compared to 2014. Arauco has shown
some improvement of its pulp segment due to the start of operations of
the Montes del Plata pulp mill. Demand for panels has been strong in
North America, while the MDF segment has shown increase competition and
oversupply in Latin-American markets. The fuel business has shown a
relatively stable performance. Copec improved its operational
performance in Chile due to higher volumes, better logistics and a
revamped commercial strategy. Empresas Copec net leverage during the LTM
was 2.3x as the company had USD6.5 billion of total debt and USD1.5
billion of cash.
Arauco a Key Credit Consideration
Arauco accounted for about 60% of Empresas Copec's EBITDA during the LTM
ended June 30, 2015. Arauco has decreased its debt levels and gradually
improved its credit metrics after leveraging acquisitions in the panels
business during 2012. As of June 30 2015, Arauco's net debt/EBITDA ratio
was 3.3x. This figure compares with USD4.6 billion of total debt, which
included USD575 million of debt at its Montes del Plata pulp joint
venture. Arauco's EBITDA should grow to about USD1.35 billion during
2015 from USD1.225 billion in 2014 and its net leverage should fall to
below 3.0x, as the company will enjoy a year's production from Montes
del Plata. This new pulp mill is capable of producing 1.3 million tons
per year of hardwood pulp, of which 50% belongs to Arauco.
Low Leverage at Copec
Copec is Empresas Copec's second most important business, accounting for
30% of its consolidated EBITDA. Copec's EBITDA is split between Chile
(62%) and Colombia (38%). Copec's EBITDA was USD554 million during the
LTM, which was similar to the level of cash generation during 2014
despite lower fuel prices (negative impact of FIFO accounting methods)
and the devaluation of the Chilean and Colombian currencies. The
company's debt was USD1 billion at the end of June (excluding
intercompany debt), which pushed net leverage to below 2.0x.
Low Debt at Holding Company Level
Empresas Copec, the holding company, has USD421 million of debt and a
strong liquidity position with USD696 million of cash. Empresas Copec
services interest expenses on its debt with interest income it receives
from its subsidiaries Copec and Abastible. The company's debt relates to
three bond issuances in the Chilean market. The first one was used to
finance the Terpel acquisition during 2009. The second issuance was
placed at the end of 2011 and was used to finance the acquisition of
Inversiones Nordeste (IN) by Abastible. The last one was issued in
November of 2014 and it was used by its subsidiary Copec to prepay debt.
Strong Track Record of Receiving Dividends
Empresas Copec has maintained a solid track record of dividend payments
received from its subsidiaries, Arauco, Copec and Abastible. It has also
benefited from an improvement in the operations of its minority
investment in Metrogas (39% participation). Historically, dividends
received by Empresas Copec have averaged around USD380 million per year.
Empresas Copec received dividends for USD345 million during the LTM
ended on June 2015 and USD305 million during 2014.
--Consolidated EBITDA margin close to 10%.
--Consolidated Capex: 2015: 730 million; 2016: 825 million; 2017: USD917
--Hardwood pulp Net CIF price: 2015: USD575/m3; 2016 USD625/m3.
--Softwood pulp Net CIF price: 2015: USD685/m3; 2016 USD705/m3.
--Capex: 2015: USD457 million; 2016 USD560 million.
--EBITDA margin in the range of 3.1% to 3.5% in 2015-2016.
--Maintenance Capex of USD200 million/year.
--Total Debt to EBITDA to remain solid around 2.5x.
A Negative Outlook or rating downgrade could occur should Empresas
Copec's key subsidiaries witness deterioration in their operational
profiles, resulting in reduced dividend payments made to their parent
company, and fundamentally weaken its capital structure. Such a scenario
would also likely result in the similar negative rating action being
taken on the subsidiaries in question. A net leverage above 3.0x for a
sustained period could trigger a downgrade or a negative rating action.
A positive rating action could occur if Empresas Copec is able to return
to exhibit a similar capital structure to the one it maintained
historically between 2001 - 2010, with adjusted net debt/EBITDA ratios
maintained below 2.0x on a sustained basis.
Additional information is available on www.fitchratings.com
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
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