Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs)
of Centrais Eletricas Brasileiras S.A. (Eletrobras) and its wholly owned
subsidiary, Furnas Centrais Eletricas S.A. (Furnas) at 'BB'. The Rating
Outlook is Stable. A complete list of the rating actions follows at the
end of this release.
KEY RATING DRIVERS
Eletrobras' IDRs continue to reflect some linkage with the Federal
Republic of Brazil's sovereign rating ('BBB-', Outlook Negative). The
sovereign holds 51% of company voting shares and guarantees 15% of its
consolidated debt at the end of September 2015. Eletrobras is also
considered as strategic to the country because of its prominent position
within the Brazilian power sector due to its relevant market share in
electricity generation, transmission and distribution.
On a standalone basis, Eletrobras' IDRs would be lower, due to its still
weak consolidated operational cash generation, high capital expenditures
program, and deteriorated credit metrics for the current rating
category. The decision to accept the early renewal of all of its
generation and transmission power concessions expiring between 2015 and
2017 severely affected Eletrobras' consolidated credit profile.
Positively, the group has been successful in reducing operational costs,
while additional compensation for the renewed transmission and
generation concessions, expected at BRL17 billion-BRL25 billion, will be
added to its cash flow generation. Eletrobras' financial profile
benefits from a strong liquidity position and an extended debt maturity
Eletrobras is exposed to political interference risks given its status
as an entity controlled by the Brazilian government. The government can
use the company to help it achieve certain macroeconomic and social
objectives through price controls and/or subsidies and as manager of
sector funds. Regulatory risk for the power sector is considered
moderate in Brazil, while the hydrological risk is currently above
Furnas' ratings are linked with its parent company (Eletrobras). Furnas
is one of Eletrobras' largest subsidiaries, representing approximately
24% of the group's installed generation capacity and 32% of its
transmission coverage in kilometers. Eletrobras has a centralized cash
management policy and is the primary funding provider for Furnas.
Furthermore, Eletrobras sets the company's strategic targets, such as
corporate governance standards and investment plans.
CASH GENERATION TO IMPROVE
Eletrobras' EBITDA generation should achieve an annual average of BRL2.8
billion in the next three years, according to Fitch projections. The
company's operational cash generation should benefit from a tariff
increase to incorporate investments that are being made on the renewed
concessions, additional compensations for the transmission concessions
renewed, efficiency gains, and divestment of the distribution business.
Eletrobras' current weak operational cash generation continues to
reflect the highly negative impact of its decision to accept the early
renewal of all of its generation and transmission power concessions. In
the last 12 months (LTM) ended Sept. 30, 2015, recurring EBITDA was
BRL1.8 billion, which excludes a BRL3.4 billion non-recurring impairment
provision at the Eletronuclear subsidiary.
CAPEX TO PRESSURE FCF
Eletrobras' free cash flow (FCF) generation is expected to remain
negative, even though capex and investment have been revised and reduced
as part of a new business strategy. Fitch views as positive that the
company's subsidiaries did not participate in the recent transmission
and generation bids promoted by the government. Eletrobras' Strategic
Plan for 2016-2019 considers BRL37.1 billion of capex and capital
injection in subsidiaries. Expansion plans pose a challenge and will
need to be funded through new debt and cash generation. Fitch does not
expect Eletrobras to pay dividends until 2017.
The company's consolidated cash flow from operations (CFFO) of BRL4.3
billion during the LTM Sept. 30, 2015 was not sufficient to cover capex
of BRL8.7 billion and dividends of BRL24 million, leading to negative
FCF of BRL4.4 billion. CFFO saw a positively impact in the last quarter
of 2014 from a suppliers credit of BRL7.2 billion from Amazonas
Distribuidora de Energia S.A. (Amazonas Energia) with Petroleo
Brasileiro S.A. (Petrobras) for fuel supply.
MANAGEABLE DEBT MATURITY PROFILE
Eletrobras' consolidated risk profile benefits from an extended debt
maturity schedule. Total adjusted debt, excluding the Reserva Global de
Reversao (RGR), increased to BRL44.8 billion as of September 2015. The
company's consolidated financial obligations are composed of
international bonds (28%), BNDES loans (17%), funds raised from
international multilateral agencies (7%) and by Federal Government Banks
(BNDES, Banco do Brasil and CEF; 33%) and others. The federal government
has supported the company through guarantees to part of the latter
debts, reducing Eletrobras' cost of funds and benefitting its cash flow.
As of September 2015, Eletrobras guaranteed BRL405 million of the debt
of its subsidiaries.
APPROVAL OF RENEWAL COMPENSATION VALUES
Fitch sees the recent approval by Agencia Nacional de Energia Eletrica
(ANEEL) of the claimed compensation values for Eletrobras' transmission
assets existing before 2000, after the concessions renewal as positive.
The company is claiming approximately BRL20.3 billion for its
transmission subsidiaries and ANEEL has already approved BRL10 billion.
Eletrobras expects ANEEL to approve a total of approximately BRL 17
billion-19 billion until the end of 2015. Claims for generation assets
in the amount of BRL 6 billion may be approved only after 2016.
DIVESTMENT OF DISTRIBUTION COMPANIES POSITIVE
Fitch believes the divestment of Eletrobras' distribution companies
(DisCos) is positive for its cash flow generation. CELG D should be
privatized during 1H16 and the remaining six DisCos by 2018. Eletrobras
expects to sell its stake/control at CELG D for a minimum BRL1.4
billion. However, although privatization of the other six DisCos may not
bring any significant cash to Eletrobras, it will avoid approximately
BRL2 billion/year of cash disbursement on CAPEX and OPEX.
HIGH IMPORTANCE TO BRAZIL
Eletrobras has a strong position as the largest electricity generation
and transmission company in Brazil, with 32% of installed generation
capacity and 48.6% of transmission lines as of September 2015. Its size
and active presence in the most relevant energy projects under
construction in Brazil makes it strategically important to the country's
economy and development.
Fitch's key assumptions within our rating case for Eletrobras include:
-- Receipt of BRL17 billion as compensation value for the transmission
concession renewal over 10 years, starting in 2016;
-- Receipt of BRL1.4 billion from the divestment of CELG D in 2016;
-- Capex (including capital injection in subsidiaries) of BRL26 billion
from 2016 to 2019;
-- Dividends: no payment in 2015 and 2016; 25% of net profit after 2017;
-- No capital injection from the government.
Factors that could potentially lead to a negative rating action are:
--A downgrade of the sovereign;
--Weakening of Brazilian government support;
--The inability to conclude divestment of the DisCos;
--Deterioration on the company's liquidity position.
Factors that could potentially lead to a positive rating action are:
--Sustained recovery of the group's operational cash flow generation;
--The Brazilian government's continuous support in order to strengthen
the linkage between the group and the Federal Republic of Brazil.
Eletrobras has historically maintained a strong liquidity position. As
of Sept. 30, 2015, the company's consolidated liquidity ratios, as
measured by cash/short-term debt and cash plus CFFO/short-term debt,
were robust, at 1.5x and 2.2x, respectively, while net leverage was
negative. Eletrobras' liquidity of BRL9 billion at the end of 3Q15,
compared with BRL6.1 of short-term debt, may be reinforced by an
additional BRL17 billion-BRL19 billion of complimentary compensation for
the early renewal of the transmission concessions and the sale of CELG D.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following:
--Foreign Currency LT IDR at 'BB';
--Local Currency LT IDR at 'BB';
--National Scale LT rating at 'AA-(bra)';
--USD1 billion senior unsecured notes due 2019 at 'BB';
--USD1.75 billion senior unsecured notes due 2021 at 'BB'.
--Foreign Currency LT IDR at 'BB';
--Local Currency LT IDR at 'BB';
--National Scale LT rating at 'AA-(bra)'.
Additional information is available on www.fitchratings.com.
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
Dodd-Frank Rating Information Disclosure Form
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
View source version on businesswire.com: http://www.businesswire.com/news/home/20151130006262/en/