Fitch Ratings has affirmed
The Rating Outlook is Stable.
Hidrovias' ratings reflect its good position in the waterway transportation industry in the North and Central-West of
The ratings also incorporate Fitch's expectation that Hidrovias will continue to maintain its deleveraging trend, reducing expansion capex, and its solid liquidity position. The company is expected to be proactive to refinance its 2025 bonds outstanding bond maturity before mid-2024, seeking to avoid refinancing risks.
Key Rating Drivers
Cash Flow Volatilities Despite Take or Pay Contracts: Hidrovias' business resilience faces challenges due to hydrological risks and/or agricultural crop failures. Over the past few years, the company's operating performance has been impacted by a combination of drastic non-manageable events. The hydrological risk on its South Corridor has now eased with the recovery in water levels in the
Diversification Helps Attenuate Hydrological Risk: In a sensitivity scenario of EBITDA loss in the North Corridor during 2024 as result of the drought, Hidrovias' credit metrics would still show some rating headroom within Fitch's rating sensitivities triggers. In Fitch's base case, net leverage metric would remain in line with 'BB-' rating triggers (below 4.5x) with up to 30% loss in the North Corridor EBITDA. Above this threshold, Fitch would expect Hidrovias to better evaluate its expansion capex in order to preserve cash.
Capital Allocation Remains Key: Management's strategy of business diversification, growth (discretionary capex), and returns to shareholders is critical to determining leverage trends. Fitch expects that in the medium term Hidrovias will continue to invest to leverage its business scale, taking advantage of growth opportunities in the market it operates. Fitch estimates capex of around
Deleveraging Trend: Hidrovias have been improving its operating cash flow generation over the past quarters with recovery in water levels in the South Corridor, record volume levels and efficiencies gains. Fitch's base case scenario estimates around
Challenge to Increase Client Diversification: Hidrovias has portfolio concentration risk, as its main clients are J&F Mineracao (a former contract of
Derivation Summary
Hidrovias's has the weakest position in the 'BB' rating category relative to transportation and logistics peers across the region, which are generally rated in the 'BB' to 'BBB' categories. Hidrovias' rating is constrained by its medium-size business scale, hydrological risks and weakest capital structure among Brazilian peers, including
Hidrovias' expected 2023 net leverage is higher than other rated Brazilian peers in the transportation and logistics sector with more mature operations and with higher credit ratings. Rumo, VLI and
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer:
Strong Revenue growth in 2023, reflecting recovery in both South and North Corridor, reaching around
EBITDAR adjusted margin around 42%-43% in the next three years;
Average capex of around
No dividends payments during 2023-2024.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Broader client diversification;
Net debt/EBITDA consistently below 3.5x and total debt/EBITDA below 4.0x;
Interest coverage consistently above 4.5x;
Maintenance of strong liquidity to avoid refinancing risks.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Large debt-funded M&A transactions or entering into a new business in the logistics sector that adversely affect its capital structure on a sustained basis or increase business risk exposure;
Net leverage consistently above 4.5x on a sustained basis;
Deterioration of liquidity position, with increasing short- to medium-term refinancing risks.
Liquidity and Debt Structure
Good Liquidity Position, Refinancing Approaching: Hidrovias has a track record of maintaining strong cash balances. As of
As of
Issuer Profile
Hidrovias is an integrated logistics provider focused on waterways logistics services. It has an end-to-end infrastructure, including transhipment, port terminals and a fleet of barges, pusher tugs and cabotage vessels. The company operates in logistics corridors in the northern region of
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
Hidrovias has a ESG Relevance score for Exposure to Environmental Impacts of '4', considering the effective impact on the company operations due the hydrological risks. Due to lower draft in rivers, the company stopped navigating for around 2 months in South Corridor (iron ore take or pay contract) during 2021. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
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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