CAPEX S.A.
Fitch Ratings affirmed
Fitch has also affirmed the company's
Capex is rated one notch higher than the sovereign of
The recovery rating on the
Key Rating Drivers
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 estimates that oil and gas production comprised 70% of 2022 EBITDA followed by approximately 23% from the electric business. Over the rating horizon, oil and gas business will remain a key contributor to cash flow generation, representing approximately 70% of the company's consolidated EBITDA.
Impact of Capital Controls:
Approximately 98% of Capex's USD-denominated debt is in the form of a bullet bond due in 2024, of which Capex has bought back nearly
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
As of
Moderate Medium-term Leverage: Fitch expects Capex's FY 2023 gross leverage (defined as total debt to EBITDA) to be close to 1.3x due to higher oil prices and demand as well as the inflation adjustment to Energia Base, but is expected to rise to 2.6x by 2026 due to lower oil prices assumptions. Fitch expects average EBITDA interest coverage to be strong at an average of roughly 6.0x over the rating horizon. Net leverage should be close to 1.1x in FY 2023 due the Capex's high cash balance and rising to 2.0x by FY 2026.
Derivation Summary
As a vertically integrated energy and electricity company,
Capex's gross leverage is expected to fall to 1.3x in FY 2023 due to higher oil prices and demand as well as the inflation adjustment to Energia Base but is expected to rise to 2.6x by FY 2026. 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 9,800boed between fiscal years 2023-2026;
Realized natural gas prices at
Oil production reaching approximately 8,700boed between fiscal years 2023-2026;
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 FY 2024 through FY 2026.
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 a 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.
Heightened refinancing risk pertaining to the bond due in
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
Adequate Liquidity: As of
Issuer Profile
Capex is an integrated Argentine company dedicated to the exploration and exploitation of hydrocarbons and the generation of electric, thermal and renewable energy.
Sources of Information
The principal sources of information used in the analysis are described in the applicable criteria.
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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