Fitch Ratings has affirmed Comision Federal de Electricidad's (CFE) Long-Term Foreign Currency Issuer Default Rating (FC IDR) and Local Currency Issuer Default Rating (LC IDR) at 'BBB-', its National Long-Term Rating at '
The Rating Outlooks for the FC and LC IDRs and the National Long-Term Rating are Stable.
CFE's ratings remain equalized with
Key Rating Drivers
Weakening Standalone Credit Profile: The revision of CFE's SCP reflects the entity's weakening cash flow due to insufficient government subsidies, to offset the increased cost of operations and elevated capex, resulting in a deterioration of its liquidity position. Fitch's rating case assumes that negative FCF will be financed with incremental debt. Fitch expects CFE to have a high gross leverage profile, defined as total debt to EBITDA, at 5.0x and a weaker FFO to interest coverage at 2.0x or less over the rating horizon. Both metrics are more consistent with the 'B' rating category.
Government Linkage: Fitch has reassessed CFE's relationship with the Mexican government under our GRE Criteria following the deterioration in the company's SCP. CFE generated negative FCF of MXN52 billion during 2021 due to elevated fuel prices and insufficient government transfers. As a result, Fitch has amended its assessments of CFE's Support
Fitch has lowered CFE's overall GRE support score to 35 from 50 due to the GRE factor revisions, but the SCP continues to justify equalization of the ratings. CFE is highly important to
Insufficient Government Transfers: Government transfers totaled MXN70.3 billion in 2021, and Fitch projects they will increase to around MXN118 billion in 2022, a level insufficient to eliminate the company's negative FCF. The Mexican government directly sets electricity tariffs to high consumption industrial, commercial services and domestic users through the
Legal Uncertainty Halts Investments: The government's proposed changes to the electricity sector have created uncertainty for private investors. This will diminish their investments in the sector and could lead to a material increase in CFE's capex burden in the near future. The Programa de Desarrollo del Sistema Electrico Nacional 2022-2036 (PRODESEN) projects a need for a growth in energy production to 110 GW from 86 GW by 2026. Fitch estimates that investment in generation to achieve this goal would total between
Negative FCF: CFE's current capital investment plan calls for MXN516 billion (
Natural Gas Price Exposure:
Increased Leverage: CFE's leverage level during the LTM ended
Derivation Summary
CFE's 'BBB-' rating mirrors those of the Mexican sovereign, given the company's strong linkage with the government and high importance to the country. Compared with other state-owned electric utility companies in
CFE's IDR is also rated higher than Brazilian company
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Revenues to increase around 8.7% driven by higher government support and higher fuel prices;
EBITDA margins improving to around 19.5% (adding the estimated actuarial cost of labor obligations into EBITDA);
Capex of around MXN125 billion during the next three years;
Total government support of around MXN118 billion in 2022;
Total debt/EBITDA ratio (Pre-IFRS16) near 5.0x at YE2022.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the Mexican sovereign rating.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of
Macro: A weakening in the consistency and credibility of the macroeconomic policy framework (e.g., if unorthodox policy interventions become more widespread, negatively affecting growth prospects and/or leading to a reassessment of the upward notching in our rating adjustment for tis factor);
Public Finances: A marked upward trajectory in the gross general government debt/GDP ratio (e.g., due to fiscal deterioration or weaker economic growth;
Structural: deterioration in governance indicators that widens the gap further to the scores of 'BBB ' category peers and further undermines the business climate.
A deterioration of the SCP to a 'b+' level due to total debt to EBITDA of 5.0x or higher, FFO to interest coverage of 3.0x or below, and/or weakened of liquidity.
Government support at a level that does not allow CFE to be FCF neutral.
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 Profile: CFE's debt totaled MXN549 billion as of
CFE's liquidity position is adequate as a result of the company's recent liability management, government subsidies, low debt amortization, available undrawn committed credit lines in USD and MXN, and access to bank and capital markets. The company's SCP deterioration limits its flexibility. As of
Issuer Profile
CFE is the largest electricity generator in
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.
Public Ratings with Credit Linkage to other ratings
CFE's ratings are linked to
ESG Considerations
CFE has an ESG Relevance Score of '4' for Governance Structure due to ownership concentration as a wholly government-owned entity and due to board independence and effectiveness, which have a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
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
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
APPLICABLE CRITERIA
Government-Related Entities Rating Criteria (pub.
National Scale Rating Criteria (pub.
Corporate Rating Criteria (pub.
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Corporate Monitoring & Forecasting Model (COMFORT Model), v8.0.3 (1)
ADDITIONAL DISCLOSURES
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ENDORSEMENT STATUS
Comision Federal de Electricidad (CFE)EU Endorsed,UK Endorsed
DISCLAIMER & DISCLOSURES
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