Fitch Assigns First-Time 'BBB+' IDR to Petroleos del Peru S.A. - Petroperu S.A.
Link to Fitch Ratings' Report: Petróleos del Perú – Petroperú S.A.
Fitch Ratings has assigned the following ratings to Petroleos del Peru
S.A. - Petroperu S.A. (Petroperu):
--Foreign Currency (FC) long-term Issuer Default Rating (IDR) 'BBB+';
--Local Currency (LC) long-term IDR 'A-'.
The Rating Outlook is Stable.
PetroPeru's ratings reflect its ownership by the Peruvian government,
the company's strong strategic ties with the state, and its strategic
importance to assure the country's energy supply. As a state-owned
company, PetroPeru's FC IDR is strongly linked with the credit profile
of the Peruvian sovereign (FC IDR 'BBB+', LC IDR 'A-', Outlook Stable).
The government support has been evidenced through multiple recent
actions including the decrees promulgated to transfer all the company's
pension liabilities to the state, and recover the value added tax (IGV
for its Spanish acronym) for the company's operations in the Amazonian
region. This has been further evidenced as the Republic of Peru has
provided a financial guarantee of up to USD 1 billion to support the
financing of the Talara project.
KEY RATING DRIVERS
Government Support: PetroPeru's ratings reflect its strong linkage with
the government of Peru (FC IDR 'BBB+', Outlook Stable). It is a
stated-owned entity that is crucial to the national energy matrix given
it is the largest hydrocarbon refiner in Peru, and its five refineries
are strategically located throughout the country.
Government Financial Guarantee: The company's credit linkage to the
sovereign is further evidenced by the explicit support of the government
through a financial guarantee for up to USD1 billion to support the
financing of the modernization of the Talara refinery (PMRT).
Weak Capital Structure: Absent government support, PetroPeru's credit
metrics are not consistent with the assigned rating. As of LTM ended
Sept. 30, 2015 the company reported total debt of USD1.07 billion and
total net debt/EBITDA of 5.6x compared with 18.7x in 2014. Fitch
believes the company will be required to incur additional debt to
finance the PMRT, potentially increasing Petroperu's leverage above 9.0x
until the project is finalized. Talara's refining margins for 2014 and
June 2015 stood at USD6.9/barrel and USD10.26/barrel respectively,
compared with USD3.35/barrel, and USD7.24/barrel of Brent cracking.
Cash flows Under Pressure: PetroPeru's cash flow generation is expected
to remain under pressure from Peruvian Sol depreciation and the decline
in oil prices, exacerbated by the company's ambitious capex plan related
to PMRT. Negative FCF is expected for the next couple of years as a
result of compressed margins and aggressive capex investments.
High Volatility Sector: PetroPeru's sales prices are set based on
international crude oil and derivatives prices and exposed to the
cyclicality and volatile nature of the industry. Refining is subject to
periods of boom and bust, as well as sharp swings in crack spreads
depending upon market conditions. The last major bust period was
2008-2009, when collapsing oil prices and lagging costs led industry
margins to collapse. Crack spreads have significantly improved in 2015
due to the decrease of oil prices and higher margins in realized prices
for crude and oil products.
Political Risk: PetroPeru is exposed to different changes in the
Peruvian Technical Normativity, as occurred in 2010 with the prohibition
of commercializing diesel with more than 50ppm of sulfur in Lima and
Callao and then extended to other regions. This norm affected
PetroPeru's cost of sales, (+12% YoY in 2013) and led the company to
decide to invest USD2.7 billion in Capex for the PMRT, including the
expansion of the refinery and the inclusion of the desulfurization unit.
The total investment of the PMRT, including pre-operative interest and
fees is USD 4 billion.
--Petroperu's ratings assume the implicit support from the government
would materialize should the company need it;
--WTI oil prices of $50/bbl in 2015, $50/bbl in 2016, and $60/bbl in
--2015-2018 capex of $3.5 billion mainly related to the modernization of
the Talara refinery;
--Crack spreads that revert to inflation adjusted historical averages
over the forecast period;
--Additional debt issuance of $2.5 - $3 billion
Negative Actions: A negative rating action could be triggered by a
downgrade of the sovereign's rating, the perception of a lower degree of
linkage between PetroPeru and the sovereign, and/or a substantial
deterioration in the company's credit metrics.
Positive Actions: An upgrade of PetroPeru could result from an upgrade
of the sovereign coupled with a continued strong operating and financial
Petroperu's liquidity position is considered weak for the rating level.
As of Sept. 30, 2015 PetroPeru had USD35 million in cash and cash
equivalents compared with approximately USD600 million (PEN1.837
billion) of short-term debt. The company's liquidity position and
exposure to refinancing risk is mitigated by the company's government
support and the potential refinancing of the short-term debt.
Date of Relevant Rating Committee: Dec. 17, 2015
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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