Fitch Ratings has affirmed
AAG's ratings reflect the company's exposure to the Argentine sovereign (CC) due to the electricity sector's reliance on government subsidies and AAG's dependence on payments from FONINVEMEM funds, which are sovereign obligations. Fitch rates AAG on a standalone basis from its parent,
Key Rating Drivers
Heightened Counterparty Exposure Partially Offset by FONINVEMEM Receivables: AAG depends on payments from the company's main off-taker, the
Counterparty risk is somewhat mitigated by the company's more predictable receivables from FONINVEMEM investments with
Parent Linkage: The ratings are based on AAG's Standalone Credit Profile, as overall legal, operational and strategic incentives to its parent company to support AAG, if needed, are low. AAG is fully-owned by
Hydro Concession Expirations and Limited Growth Expected: The expiration of concessions for key hydro assets will lower future EBITDA to below
A wind expansion project has been postponed, and could be deferred further, given the new government has paused all projects not yet in development, so new debt financings are currently not in Fitch's forecast. AAG's gross leverage in Fitch's base case scenario is projected to decline to 2.9x in 2023, and to 0.7x by 2024 as the company has repaid its outstanding balance of notes due
Base Energy Inflation Adjustment: The indexation of Base Energy, or Energia Base, will be important for AAG and other producers, as revenue is nearly 80% derived from Energia Base when FONINVEMEM collections are considered. Base Energy was pesified, or denominated in Argentine pesos per Resolution 31/2020. Since then, approximately 10 additional resolutions have been passed to increase rates, with the latest (Resolution 9/2024) adjusting rates by 75% and maintaining the tolling agreement structure in place.
Uncertain Regulatory Environment: The electricity market remains uncertain under
Low Commodity Price Effect: Exposure to rising global commodity prices will be low. Revenue is primarily from Energia Base, with participants having fuel sourced and paid for by CAMMESA. While the coal used in the San Nicolas plant is sourced internationally, from
Derivation Summary
AAG's ratings reflect exposure to CAMMESA as an offtaker, which is reliant on subsidies from the Argentine government. This is the same situation for Argentine utility and energy peers
Pampa has a more diversified business profile as a leading company in electricity generation, distribution, transmission, gas production and transportation, while Capex has an advantageous vertical integration in the thermoelectric generation segment, with the flexibility of having its own natural gas reserves to supply plants.
In terms of credit metrics, AAG's gross leverage as of YE 2022 was 4.1x, compared with Pampa at 1.4x,
Key Assumptions
Energia Base assets are remunerated under Resolution 440/2021 with full inflation pass-through in each subsequent year;
Gross generation of approximately 5,900GWh during 2023, falling to roughly 4,650GWh in 2024 after the expiration of the Alicura hydro concession in
AAG achieves generation capacity factors of 25% for thermal assets, 20% for hydro and 40% for wind during the rating horizon;
Average annual maintenance capex of
No dividend payments until 2025;
Refinancing of the majority of outstanding notes due 2027.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade to the ratings of
Given the issuer's high dependence on subsidies from CAMMESA, any regulatory developments leading to a more independent market less reliant on support from the Argentine government could positively affect collections and cash flow.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of AAG below 'CCC-' would be due to Fitch's belief that a default of some kind appears probable or a default or default-like process has begun, which will be represented by a 'CC' or 'C' given the ratings of AAG are linked to those of the Argentine sovereign due to the high reliance on government subsidies to the electricity sector.
Liquidity and Debt Structure
Adequate Liquidity: AAG reported available cash of
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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