Fitch Ratings has affirmed
The affirmation reflects our view that Puma Energy's expected infrastructure disposal will have a neutral impact on its adjusted debt. We forecast gross leverage at around 4.0x on a funds from operations (FFO) lease-and-readily marketable inventory (RMI) adjusted basis. The rating is constrained by weak fixed charge cover ratios amid higher rental cost post infrastructure asset disposal, as well as certain volatility in profitability, for both EBITDAR and free cash flow (FCF) margins.
The ratings continue to reflect the group's geographical and business diversification, strong underlying demand drivers, which are partly offset by inherent cash flow volatility from its sizeable emerging-market exposure. Following the latest recapitalisation, we view Trafigura as more akin to a supportive financial investor looking to dispose of its controlling stake in the foreseeable future. We may reassess our approach if the parent's behaviour changes, leading to a detrimental impact on Puma Energy's creditor group.
Key Rating Drivers
Standalone Rating Approach Retained: We view Trafigura's 96.6% shareholding in Puma Energy as more aligned with an investment that it is looking to dispose of over the four-year rating horizon than a fully integrated business. We therefore analyse Puma Energy on standalone basis despite Trafigura's 96.6% ownership. Changes in Trafigura's behaviour leading to a material cash leakage from Puma Energy may lead us to reassess our view of linkage under our Parent and Subsidiary Linkage (PSL) Criteria.
Disposal Neutral to Adjusted Debt: Increase in lease-equivalent debt, due to higher rental costs, will largely offset a reduction in gross debt from the proceeds of the group's
Leverage Adequate for Rating: Fitch expects FFO RMI- and lease-adjusted leverage of around 4.0x when the disposal is completed. This is on the cusp of our positive rating sensitivity and 1.0x higher than expected previously, post the group's rights issue in 2021. Puma Energy has announced a 2.5x net debt/ EBITDA (pre-IFRS 16) medium-term target (not adjusted for inventory), which it expects to comfortably meet in 2023.
Weak Fixed Charge Cover: The rating is constrained by its weak RMI-adjusted FFO fixed charge cover ratio, which we forecast at around 1.5x against 2.5x previously, due to rental costs being twice as high in 2023 relative to 2021 levels. Although a higher share of fixed (rental) costs is a burden on Puma Energy's credit profile, it is somewhat mitigated by greater clarity on the group's financial policy suggesting some financial discipline.
Lower Earnings: We expect EBITDA (after rents) to trend towards
Standalone Liquidity Improved: Puma Energy has extended an expanded revolving credit facility (RCF) by nearly
Disposals Reduce Scale: We expect EBITDAR at above
Strong Demand Drivers: Puma Energy benefits from strong underlying demand drivers in emerging markets. It has operations in nearly 40 countries, mainly in emerging markets, with the top 10 contributing around 75% of its reported 2021 EBITDA (including discontinued operations, pre-IFRS16). Exposure to emerging markets can make cash flows more volatile due to currency movements, as experienced in 2020, among other factors.
Limited Oil Price Risk: Puma Energy hedges its physical fuel supply. All of its supply stock is either pre-sold or hedged against price fluctuations. Therefore, in evaluating leverage and interest coverage ratios, Fitch excludes debt associated with financing RMI and reclassifies the related interest costs as cost of goods sold. The difference between RMI lease-adjusted and RMI-unadjusted lease-adjusted FFO net leverage is 0.5x-1.5x.
Derivation Summary
Puma Energy's closest peer is
We expect Puma Energy's RMI lease-adjusted gross leverage at 4.0x following its rights issue and various disposals, including the planned infrastructure sale. This still remains above the leverage of
Puma Energy's retail operations can be compared, to some extent, with those of
EG has higher exposure to more profitable convenience and food-to-go retail than Puma Energy, leading to higher expected EBITDA and FFO margins of around 5% and nearly 3%, respectively, versus around 2% and 1.5% for Puma Energy. EG's rating reflects a weaker financial profile following a period of mainly debt-funded acquisitions, with FFO lease-adjusted gross leverage falling below 8.0x over the next 12-18 months.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Sales volumes at 16,400,000 m3 for 2022, growing 1.2% in 2023 and 2% from 2024
Stable gross profit unit margin over 2022-2025 at
Working capital outflow of
Capex of
Infrastructure disposals to yield
Cash inflow of
No foreign-exchange impact following
No dividends or further M&A (post infrastructure disposal)
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Evidence of sustained unit margins and FFO margin while maintaining EBITDAR at above
RMI- and lease- adjusted net debt/EBITDAR sustained below 4.0x in combination with a record of compliance with its financial policy
RMI-adjusted EBITDAR/interest + rents cover sustainably above 2.0x
Enhanced financial flexibility translated into a record of positive free cash flow (FCF) generation and a sustainable standalone liquidity profile
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Lack of progress to refinance/extend its RCF by 1Q23
RMI- and lease- adjusted net debt/EBITDAR sustained above 5.0x
Change in Trafigura's behaviour or policy towards Puma Energy leading to a potential material cash leakage from the subsidiary, resulting in Fitch reviewing the linkage with Trafigura under its PSL Criteria. Assessment of open legal ring-fencing permitting value extraction from subsidiary combined with free potential access & effective control of subsidiary's cash by the parent, especially in combination with the above-mentioned factors, could result in negative rating action.
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
Liquidity Adequate: As of
Available liquidity is lower as Trafigura has now cancelled both its
Subsequent to the completion of the infrastructure disposal and use of proceeds to repay a number of outstanding credit facilities, the remaining
Issuer Profile
Puma Energy is a globally integrated midstream and downstream oil group, operating in nearly 40 countries worldwide across the
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.
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