Fitch Downgrades LLX Acu Operacoes Portuarias S.A. to 'B-(Bra)'; on Rating
SAO PAULO & RIO DE JANEIRO -- July 2, 2013
Fitch Ratings has downgraded the rating on LLX Acu Operacoes Portuarias S.A.'s
(LLX Acu) 750 million Brazilian reais debentures' to 'B-(Bra)' from
'BBB+(Bra)' and placed it on Rating Watch Negative.
The rating action reflects the uncertainty as to the ability of project's
sponsors, LLX Logistica S.A. and Centennial Acu (Centennial), both part of EBX
Group and majority owned by Mr. Eike Batista, to provide financial support to
Over the short term, the project's financial feasibility relies on capital
injections from LLX Logistica S.A. and Centennial shareholders. Fitch believes
that the project has strong links with all companies of EBX Group and with its
main shareholder, Eike Batista, who expressed his formal commitment to support
the project. LLX Logistica S.A. has recently announced that it has hired
financial advisors to evaluate possible business opportunities and corporate
transactions involving the company's assets and its securities. Should LLX
Logistica fail in strengthening its liquidity position in the next three
months, the current rating could be further downgraded.
Key Rating Drivers
--Parent Exposure: The rating is based on LLX Acu's stand-alone credit
profile, but is limited by the project's exposure to the credit quality of its
sponsors LLX Logistica S.A, Centennial Asset Participacoes S.A. (Centennial)
and ultimately, Eike Batista. The sponsors' credit quality is currently under
scrutiny. Their sister company, OGX Petroleo e Gas Participacoes S.A., was
recently downgraded to 'CCC'/'CCC(bra)' by Fitch and the search for strategic
partners by some of the EBX Group's companies is a clear indication of its
weakening credit profile (See the Fitch release 'Fitch Downgrades OGX to
'CCC/CCC (bra)'; Outlook Negative, June 14, 2013). With a 'CCC' rating,
default is a real possibility for OGX, the Group's most important asset,
making continued equity support from the sponsors doubtful.
--Weakened Capital Structure: LLX Acu has still been unable to convert
short-term bridge loans to long-term, lower-cost financing from BNDES,
exposing the project to increased refinance risk. All of LLX Acu's outstanding
debt obligations except the debentures are short-term liabilities expiring as
early as February 2014. LLX Acu is currently negotiating with BNDES to convert
short-term facilities into long-term.
--Weaker Revenue Profile: Revenues are under pressure as a result of the slow
pace of LLX Acu's signing of lease contracts with tenants. Furthermore,
slowing GDP growth in Brazil and decreased demand from China for exports such
as steel, slag, and coal may have a negative impact upon future trade revenues
at Brazilian Ports.
--Construction risk: Liquidity constraints and increased CAPEX costs at the
Port could result in investment delays at LLX Acu, halting future
construction, and leading to a delay in operating revenue from cargo traffic.
--Inadequate Liquidity: LLX Acu's inability to secure additional sources of
sufficient equity from sponsors or alternative providers as well as to
refinance its short-term obligations that result in the project's default
would warrant further rating downgrade.
--Lack of information: Without receipt of additional financial information and
a viable funding strategy that supports LLX Acu's prospects for project
completion, the rating would further decline.
--Increasing Capex costs: Above-budget CAPEX and construction delays that
adversely affect operating cash flow available for debt service would
negatively impact the rating.
The rated debentures are senior unsecured obligations of LLX Acu and will be
guaranteed on a senior secured basis by LLX Logistica S.A, Centennial and Mr.
LLX Acu's port expects expected to enter operations by late 2014 with 17 km of
quay, up to 40 berths, and the ability to receive very large carriers
(including Chinamax) thanks to its 26-meter depth. Construction is progressing
on the original schedule. To date, management reports that they have signed
BRL$90 million in lease contracts.
LLX Acu is a privately controlled mixed-model port belonging to the Superporto
do Acu complex in the State of Rio de Janeiro (RJ). The Acu Superport (LLX
Minas-Rio and LLX Acu) and Industrial Park is planned to be the largest
private port and industrial facility in Latin America, covering an area of
approximately 13,212 hectares, and expected to become one of the world's
busiest ports in cargo tonnage handled. LLX Acu's cash flows are derived from
real estate lease contracts within the industrial park at the port, and port
cargo traffic once the port installations enter into operations, originally
forecast for the second-half of 2014. With a total original project investment
of R$4.1 billion, the two-terminals are expected to handle iron ore, oil,
steel products, coal and other bulk liquids and solids.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', July 11, 2012;
--'Rating Criteria for Ports, Sept. 27, 2012.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Ports
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