Fitch Ratings has affirmed Transportadora de Gas Internacional S.A.
E.S.P.'s (TGI) ratings as follows:
--Foreign and local currency Issuer Default Ratings (IDRs) at 'BBB';
--International senior unsecured debt at 'BBB'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
TGI's ratings reflect the company's stable and predictable cash flow
generation, business strength, as well as its solid liquidity position.
Historically, TGI has benefited from its linkage to its primary
shareholder, Empresa de Energia de Bogota S.A. E.S.P. (EEB), which
supports the company through an intercompany loan. TGI's exposure to
regulatory risk is considered moderate, further supporting its ratings.
Stable Cash Flow: TGI's ratings reflect the company's low business risk
profile, which stems from its stable and predictable cash flow
generation, as well as its strong competitive position. TGI has
favorable long-term take-or-pay contracts with approximately 90% of
revenues coming from regulated fixed tariffs. These fixed payments from
a diversified portfolio of off-takers add to cash flow stability. The
company has low exposure to volume risk as only 9% of revenues are
linked to volume throughput. TGI's pipeline location and the importance
of its service area, where 70% of the Colombian population resides,
represent substantial growth potential and help support the company's
credit profile and credit rating.
Capex Step-up: Per Fitch's base case, capital expenditures for 2015 to
2019 are expected to ramp-up versus the 2011-2014 period as the company
executes an investment plan in pursuit of growth opportunities. As a
reminder, during 2011-2014 the company spent USD1.2 billion in capex.
Fitch believes this ambitious capital investment program will be funded
via the company's strong internal cash flow generation and the addition
of an equity partner in 2016.
Constructive Regulatory Risk: TGI's ratings also incorporate its
exposure to regulatory risk, as the bulk of its revenue comes from
contract tariffs, which are set by the regulator. The tariff structure
for natural gas transportation companies is based on each company's
asset value, expected capital expenditures for expansion, and
remuneration for costs and operating expenses. Fitch considers the
Colombian utilities' regulatory framework to be balanced and fair to
market participants and independent from the central government.
Parent Support: TGI benefits from its parent company's explicit and
implicit support. EEB (Fitch IDR: 'BBB') owns 99.97% of TGI, and, in
turn, the District Capital of Bogota (Bogota DC; foreign currency IDR
'BBB') owns 76.3% of EEB.
Company Transitioning to IFRS: The company is transitioning to
international financial reporting standards (IFRS), so latest 12 months
(LTM) calculations are inaccurate in measuring the company's financial
performance. Comparable 2015 and 2014 results will not be available
until the company publishes full-year 2015 results in early 2016. As the
company has disclosed first-half 2015 (1H15) and 1H14 financial results
in IFRS format, these are the most relevant year-over-year comparisons
that can be analyzed for income statement and cash flow performance.
Increasing Leverage: TGI's leverage level is moderate with
debt-to-EBITDA of approximately 2.5x in dollar terms as of June 30,
2015. Including a USD370 million deeply subordinated intercompany loan
from EEB (which receives 100% equity credit when Fitch calculates the
company's leverage metrics), leverage would be approximately 3.5x in
dollar terms. Going forward, TGI's leverage will increase given EEB's
transaction to buy the 31.92% stake of TGI it did not previously own.
The USD645 million syndicated loan used to fund the purchase of the TGI
equity stake is held in an offshore SPV, with the debt expected to be
absorbed by TGI in 1H16. Following debt prepayments, Fitch expects the
total incremental debt at the TGI level from this transaction will total
approximately USD219 million. Fitch expects leverage to rise to 3.2x
when the debt is absorbed by TGI. Long-term, given the company's strong
cash flow generation, leverage is expected to decline to the 2.5x-3.0x
range on a sustained basis. In 2014, the company reported EBITDA of
approximately USD357 million. Total debt (including an equity credit for
the subordinated intercompany loan) was approximately USD880 million.
Dividend Payments to Continue: In March 2014, TGI's shareholders
approved the first dividend distribution in the history of the company.
The approved dividends amounted to 100% of 2013 net income, an advance
of the 2014 net income, and payouts from the company's reserves. Total
dividend payouts were USD319 million for the 2014 fiscal year. Fitch is
projecting that the company will be paying on average USD125 million in
annual dividends going forward, a figure that is above company guidance.
Given the company's strong cash flow generation, Fitch expects the
company to maintain comfortable liquidity despite the payment of
substantial dividends and ramped up capex going forward.
Negative: Future developments that could, individually or collectively,
lead to negative rating actions include:
--Company's financial profile deteriorates resulting in sustained gross
leverage levels of 4.0x or above on a sustained basis;
--Negative regulatory developments and/or tariff reviews that could lead
to a deteriorating credit profile;
--Influence from the company's shareowner that results in a suboptimal
financial/operational strategy that could hurt the company's credit
--Company's ambitious capex program is not partially funded by
substantial capital injections.
Positive: A positive rating action or Outlook is unlikely in the near-
to medium-term given the company's ambitious capital investment program.
It would be viewed positively if the company significantly reduces its
leverage after the company's latest investment program is finalized.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: The company's liquidity position is supported by its
cash on hand, strong internal cash flow generation and favorable
amortization schedule. TGI does not have significant amounts of debt
coming due before 2022. On June 30, 2015, TGI's cash and marketable
securities totaled USD328 versus no short-term debt.
TGI's regulated revenues are partially indexed to the U.S. dollar
(approximately 66% of 1H15 revenues are indexed to USD), which mitigates
the risk from currency fluctuations as USD denominated revenues
satisfactorily cover interest expenses. Going forward, the company's
liquidity position will be supported by its internal cash flow
generation, despite expectations for a ramp-up in capex during the next
--Average EBITDA of USD350 million per year, ramping up starting with
2019 as projects come on-line;
--Company prepays syndicated loan by around USD219 million by the time
the debt is absorbed by TGI;
--Capital expenditures to ramp up in 2015-2019 versus 2011-2014 spending;
--Company gains an equity partner to help fund the ramp in capex;
--Leverage rises to 3.0x-3.5x range in 2016, declining long-term to
Fitch has affirmed the following ratings:
--Foreign and local currency IDRs at 'BBB';
--International senior unsecured debt at 'BBB'.
The Rating Outlook is Stable.
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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