Fitch: Liquidity and Demand Spur Stability in 2013 for Latin American Power

  Fitch: Liquidity and Demand Spur Stability in 2013 for Latin American Power

Business Wire

CHICAGO -- November 28, 2012

Strong liquidity and positive medium-term electricity demand support a stable
rating outlook for Latin American power companies for 2013, according to a new
Fitch Ratings report.

'Latin American electricity demand is anticipated to be positively correlated
to GDP, which is expected to grow by 3.8% in 2013, up from 3% in 2012,' said
Lucas Aristizabal, Director. 'Latin American power companies' liquidity also
continues to be strong. As of June 2012, the median cash in hand and cash in
hand plus last 12 months funds from operations covered short-term debt by
approximately 1.1x and 8.7x, respectively. Nevertheless, access to credit
continues to be a concern for some companies given significant capital needs
over the medium term.'

The Brazilian government's attempts to lower end user energy tariffs by as
much as 20% remain a concern as some of these efforts - including a proposal
to renew electric concessions early for an upfront payment and lower tariffs
and revenues - have the potential to negatively impact credit ratings. Most
notably the upfront payment might not be enough for Eletrobras to adjust its
capital structure to a level that will still be in line with the company's
credit quality.

In general, the Brazilian government's proposals will limit available funds to
reinvest internal cash flow generation back into the electricity sector and
reduce their ability to access debt capital markets and bank financing.

Electricity demand is expected to be especially strong in Chile, Peru and
Panama and will require capacity additions and associated transmission and
distribution investments. Announced capacity expansions will most likely be
insufficient to keep up with energy demand growth in Argentina, Venezuela, and
some Central American countries. This, coupled with already uncomfortably low
energy reserve margins in these countries, will have significant short- and
long-term consequences.

An adequate and proactive regulatory framework supporting cash flow is
fundamental to attracting private investment. Countries with less predictable
regulatory frameworks and more government intervention, such as Venezuela,
Dominican Republic and Argentina, will have to depend heavily on government
support to meet growing electricity demand and are considered to be more prone
to electricity shortages and inefficient generation capacity in the long run.

Rating actions during 2012 were equally divided between upgrades and
downgrades with only 10 rating actions resulting in a rating change. Of the
five downgrades during 2012, three were related to Grupo Rede, which defaulted
on its financial obligations during this year.

The full report, titled '2013 Outlook: Latin America Power Sector', is
available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: 2013 Outlook: Latin America Power
Sector

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695633

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Contact:

Fitch Ratings
Lucas Aristizabal, +1-312-368-3260
Director
Fitch, Inc.
70 West Madison St.
Chicago, IL 60602
or
Mauro Storino, +55-21-4503-2625
Senior Director
or
Ana Paula Ares, +54-11-5235-8121
Senior Director
or
Elizabeth Fogerty, +1-212-908-0526
New York, Media Relations
elizabeth.fogerty@fitchratings.com