Abengoa Targets Two-Step Credit-Rating Upgrade, CEO Says

Abengoa SA, the biggest developer of solar-thermal plants, is seeking to raise its credit ratings by two levels in a bid to reduce financing costs, Chief Executive Officer Manuel Sanchez Ortega said.

A credit rating upgrade would help the Seville, Spain-based company reduce its annual financing costs by 100 million euros ($137 million) to 120 million euros within two years, Sanchez Ortega said in an interview in Madrid yesterday.

Abengoa is rated five levels below investment grade by Standard & Poor’s and Moody’s Investors Service, and one level higher by Fitch Ratings Ltd. The company cut its debt-to-earnings before interest, taxes, depreciation and amortization ratio to 2.2 times at the end of last year from 3.7 times in 2012, the CEO said. The target is for below 2 times in 2014.

“We would be comfortable by upgrading our rating by two notches; that’s our goal,” Sanchez Ortega said. “We are very satisfied with the deleveraging of the company. In order for our ratings to be upgraded, Moody’s is expecting our ratio to be below 3 times.”

The engineering company also plans to sell bonds to refinance its existing debt and extend maturities, the CEO said. Some of those bond issuances may be backed by projects in Latin America, he said.

‘Recurring Player’

“Abengoa will be a recurring player in the capital markets,” he said.

Abengoa raised 517.5 million euros in October by selling American depositary receipts, each equivalent to five company’s Class B shares. The company’s trading will be increasingly concentrated on the Nasdaq Global Select Market, the CEO said.

The company pursued the U.S. listing to reflect the fact that 30 percent of Abengoa’s revenue comes from the U.S., said Sanchez Ortega, who is based in Washington. About 27 percent comes from Latin America and 15 percent from Spain.

Abengoa is in talks with international funds to raise about 300 million euros in equity to finance part of a power-transmission project in Brazil, the CEO said. He’s seeking to complete the pool of partners in the second quarter.

The company plans to invest about 150 million euros to 160 million euros of its own money in the Brazilian project. Total investment required for the project is 1.7 billion euros, of which about 30 percent is equity and the rest is debt financed by Brazil’s development bank, he added.

Brazilian Ambition

“Demand to invest in the Brazilian project is twice as much as what we need,” the CEO said. “We are in very advanced negotiations with potential investors.”

In Chile, where Abengoa is building South America’s biggest solar-thermal plant, the company is also holding talks with international funds to raise about 120 million euros to finance the power plant before year-end, the CEO said. Abengoa will invest about 60 million euros.

Abengoa said yesterday it will propose a scrip dividend of 0.111 euros per share at a shareholder meeting this year. That compares with a cash dividend of 0.72 euro last year.

Abengoa’s full-year net income almost doubled to 101 million euros in 2013 from 55 million euros a year earlier. Earnings before interest, tax, depreciation and amortization climbed 44 percent to 1.37 billion euros as sales rose 17 percent to 7.36 billion euros, according to a company presentation yesterday.

“We believe this set of results is positive especially because 2013 was a year full of complexities” including subsidy cuts and regulatory hurdles, he said.

Company’s shares rose 1.2 percent to 3.60 euros as of 9:57 a.m. in Madrid. It compares with 3.81 euros strike price on 200 million euros of convertible bonds due July 2014 Bloomberg data show.

Abengoa’s preliminary plan is to use its 4.84 percent treasury stock to help offset the dilution should the convertibles hit the strike price, Sanchez Ortega said.

(Updates with shares, convertible prices, and CEO comment on treasury stock in last two paragraphs.)
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