Fitch Ratings affirmed
Fitch has also affirmed the company's
The recovery rating on the
Key Rating Drivers
Heightened Counterparty Exposure: Capex's electric business depends on payments from CAMMESA, which acts as an agent on behalf of an association representing agents of electricity generators, transmission, distribution and large consumers or the wholesale market participants (Mercado Mayorista Electrico; MEM). Payment delays from CAMMESA were approximately 79 days in
Weak Operating Environment: Capex's ratings reflect regulatory risk given strong government influence in the energy sectors. Capex operates in a highly strategic sector where the government both has a role as the price/tariff regulator and also controls subsidies for industry players. Fitch believes Capex's oil and gas business will continue to remain the main contributor to the company's cash flow stability. Fitch estimates that oil and gas production comprised 58% of 2021 EBITDA followed by approximately 28% from the electric business. Over the rating horizon, oil and gas business will remain a key contributor to cash flow generation, representing approximately 65% of the company's consolidated EBITDA.
Impact of Capital Controls: Fitch believes Capex will not be vulnerable to the central's bank most recent capital controls due to its long-dated maturity profile.
Pesification of Energia Base: Fitch expects the pesification of Energia Base, or denominating it in pesos instead of dollars, to result in a 23% decline in Capex's realized thermal energy price, to
Advantageous Vertical Integration: Capex is an integrated thermoelectric generation company whose vertically integrated business model gives it an advantage over other Argentine generation companies, especially given existing gas limitations in the country. Capex benefits from operating efficiencies as an integrated thermoelectric generation company and the flexibility from having its own natural gas reserves to supply the plant. Capex's generating units are efficient and the proximity to its natural gas reserves in the Agua del Cajon field coupled with gas transportation restrictions from Neuquen basin to the main consumption area in
Small Production Profile: Capex has a small and concentrated production profile, and its asset base as well as all of the company's proved (1P) reserves and production are concentrated in
Adequate Hydrocarbon Reserves: Fitch believes Capex has an adequate reserve life of 12.4 years 1P and 14.6 years 2P providing some flexibility to reduce capex investments if needed. As of
Manageable Investment Plan: Fitch believes that Capex's investment plan is manageable and that future investments will be financed through the company's cash flow generation, without requiring additional debt in the 2021 fiscal year. The investment plan for the period 2022 to 2025 is approximately
Moderate Medium-term Leverage: Fitch expects Capex's 2022 leverage to fall to 2.3x due to higher oil prices and demand as well as the inflation adjustment to Energia Base but is expected to rise to 2.9x by 2025 due to lower oil prices, the pesification of compensation for non-PPA electricity generators and the inflation effect of its dollar-denominated debt. Fitch expects average EBITDA interest coverage to be strong at an average of roughly 6.0x over the rating horizon. Leverage will be more moderate on a net basis at 2.1x in 2022 due the Capex's high cash balance and rising to 2.8x in 2025.
Derivation Summary
As a vertically integrated energy and electricity company,
Capex's gross leverage is expected to fall to 2.3x in 2022 due to higher oil prices and demand as well as the inflation adjustment to Energia Base but is expected to rise to 2.9x by 2025. Capex's expected medium-term leverage is slightly higher than that of oil and gas peers CGC (1.3x in 2022 and 2023), PCR (1.7x in 2022 and 1.4x in 2023) and
Key Assumptions
Natural gas production of approximately 7,300boed in 2022 and 6,800boed thereafter;
Realized natural gas prices at
Oil production reaching approximately 7,500boed in 2022 and 8,300boed thereafter;
Fitch's Price deck for Brent oil prices adjusted for Capex's FYE of
Annual electricity production of approximately 3,800GWh;
Electricity prices denominated in Argentine pesos around
Total capex of approximately
No dividends payments between 2021 through 2024.
Key Recovery Rating (RR) Assumptions:
The recovery analysis assumes that Capex would be going concern in bankruptcy;
Fitch has assumed a 10% administrative claim;
The 50% advance rate is typical of inventory liquidations for the oil and gas industry;
30% EBITDA decline during bankruptcy;
6.0x going concern EV/EBITDA multiple;
The Recovery Rating is limited to 'RR4' and the bond's rating is limited to its issuer's IDR of 'CCC+' since
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade to the ratings of
Net production rising on a sustainable basis to 35,000boed;
Increase in reserve size and diversification and maintaining a minimum 1P reserve life of at close to 10 years;
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade by more than one notch of
A reversal of government policies that result in a significant increase in subsidies coupled with a delay in payments for electricity sales;
Sustainable production size decreased to below 10,000boed;
Reserve life decreased to below seven years on a sustained basis;
A significant deterioration of credit metrics to total debt/EBITDA of 4.5x or more.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Liquidity: As 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
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONSENTITY/DEBT RATING RECOVERY PRIOR
Capex S.A. LTIDR CCC + Affirmed CCC+
LC LTIDR CCC + Affirmed CCC+
senior unsecured
LT CCC+ Affirmed RR4 CCC+
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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