Fitch Affirms Taesa's Ratings at 'BBB' and 'AAA(bra)'; Outlook Stable
RIO DE JANEIRO -- September 17, 2013
Fitch Ratings has affirmed Transmissora Alianca de Energia Eletrica S.A.'s
(Taesa) Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB' and
Long-Term National Scale Rating at 'AAA(bra)'. Fitch has also affirmed the
National Scale Rating of the BRL2,160 million third debenture issuance at
'AAA(bra)'. The Rating Outlook is Stable.
Key Rating Drivers
Taesa's investment grade ratings reflect the maintenance of a solid financial
profile, even after the relevant acquisitions made in the last couple of
years, in the total amount of BRL3.8 billion. In July 2012, Taesa concluded
its capital issuance in the amount of BRL1.755 billion, which, in Fitch's
view, allowed the company to keep its financial leverage in line with the
The ratings also consider Taesa's strong and diversified portfolio of power
transmission assets, with predictable cash flow generation and high operating
margins. The ratings incorporate the company's low business risk given that
most of its concessions are not subject to periodical tariff reviews and
expire from 2030 on. The regulatory risk of the Brazilian power sector is
considered moderate. Taesa's ratings are not constrained by the credit quality
of one of its main shareholders, Companhia Energetica de Minas Gerais (Cemig),
since Cemig shares the company's control with an investment fund and its
access to Taesa's cash is limited to dividends.
Expectation of Reduced Leverage
On a pro-forma basis, Fitch expects Taesa to be able to maintain its
consolidated net financial leverage close to 3.0x in 2013 and below in the
following years, absent new acquisitions. The company's historically low
consolidated leverage, even with substantial dividend payments in recent
years, was pressured by the full acquisition of five transmission assets from
Abengoa and participations in 10 assets from Cemig. During the last 12 months
(LTM) ended June 30, 2013, the company reported, under the Brazilian
accounting rules (BR GAAP), a total debt/EBITDA ratio of 4.2x and net
debt/EBITDA of 3.6x, which compare, respectively, with 4.4x and 2.0x reported
in 2012 and 4.5x and 3.7x in 2011. As per Fitch calculations, on a pro forma
basis, if the one-month EBITDA of the assets acquired from Cemig is
annualized, as well as the second quarter of the remaining consolidated
companies, net leverage would be 2.9x.
Low Business-Risk Assets
Taesa's ratings are based on the low business risk of its asset portfolio and
minimal exposure to concession renewals over the short- to medium-term. Taesa
is one of the largest power transmission companies in Brazil, with 7,586 km of
transmission lines spread across the country. The company has 24 concessions,
including 12 fully-owned, which dilutes potential operating risks. Taesa
benefits from a diversified client base and guaranteed payment structure. The
expiration of its concessions will not begin until 2030, taking place on a
staggered basis over the following years.
The company's exposure to periodical tariff reviews is low, since only four of
its 24 concessions were obtained after November 2006 and are subject to this
procedure. Exposure to tariff reviews may increase as the company participates
in bids for new transmission concession projects. Pursuant to Taesa's other
concession contracts, prior to November 2006, the annual permitted revenues
(RAPs) of these concessions should decrease by 50% after the 15th year from
when they commenced operations, with the first such decrease in revenue
occurring in 2016. Fitch expects Taesa to manage its debt level in order to
mitigate the impact of this cash flow generation reduction on its credit
Predictable Cash Flow and High EBITDA Margins
Taesa's highly predictable power transmission revenues are based on the lines
availability, rather than on the volume transported. The company's
consolidated revenue has been driven by the inflation-based annual RAP
readjustments and on the incorporation of the new assets acquired. During the
LTM ended June 30, 2013, the company reported consolidated net revenue and
EBITDA of BRL1,368 million and BRL1,197 million, respectively, pursuant to
Fitch's criteria and under BRGAAP, compared with BRL1,231 million and BRL1.078
million in 2012, and BRL828 million and BRL745 million in 2011. EBITDA margin
has been high, from 85% to 90%, characteristic of a transmission company, at
87.5% during the LTM ended June 30, 2013. When annualizing the one-month net
revenue and EBITDA of the assets acquired from Cemig, as well as the second
quarter of the remaining consolidated companies, net revenue of BRL1,693
million and EBITDA of BRL1,479 million generate a margin of 87.4%.
Fitch expects Taesa's free cash flow (FCF) to be linked to the level of
dividend payments, as long as it does not obtain projects to be developed. The
cash flow from operations (CFFO) should remain robust, reflecting the high
business margins. In accordance with IFRS accounting rules, CFFO and FCF were
BRL1,161 million and BRL421 million, respectively, for the LTM ended June 30,
2013. The FCF should continue to be pressured by strong dividend payments,
which reached BRL734 million during that same period.
Manageable Debt Profile
Taesa's consolidated debt is characterized by an extended maturity profile and
reduced foreign exchange risk. The growth recorded in recent years reflects
the debt contracted to finance the recent acquisitions, which amounted to
BRL3.8 billion, added to the financial obligations which came with the
concessions acquired. As of June 30, 2013, Taesa's debt was BRL5.1 billion
(BRL4.6 billion by the new IFRS consolidation rule), mainly composed of BRL4.1
billion of debentures, BRL404 million of commercial paper (CP) and BRL342
million of IDB loans. The CP was issued by Taesa in May 2013 to prepay debt
with BNDES and debt linked to foreign exchange variation with IDB. This
reduced the group's exposure to currency mismatch risk. By the end of June
2013, foreign currency debt was BRL214 million, representing only 4% of the
Taesa's liquidity position has weakened during the second quarter of 2013,
after the payment of BRL1.7 billion for the participation in assets acquired
from Cemig. By the end of June 2013, cash and marketable securities amounted
to BRL772 million, covering 86% of the short-term debt of BRL897 million,
which includes the outstanding balance of the BRL404 million in CP. Taesa
intends to refinance the CP with a new debenture issuance. On a pro forma
basis, considering the payment of the CP, coverage of the BRL493 million
short-term debt balance by cash and marketable securities would be 1.6x.
Negative rating actions could be triggered by deterioration in Taesa's
consolidated financial profile, with net leverage going above 3.5x.
Acquisitions at significant volumes financed with debt and relevant
investments in new projects with risks associated with the construction phase
and low profitability could also pressure company's ratings.
A positive rating action could be triggered by the strengthening of Taesa's
financial profile, with net leverage going below 2.0x and a sustainable
increase in its liquidity position.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (August 2013);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
National Ratings Criteria
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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