has affirmed Transportadora de gas del Peru, S.A.'s (TGP) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+'.
Fitch has also affirmed TGP's US$850 million notes outstanding due in 2028. The rating outlook is stable.
According to the credit rating agency, TGP's ratings and stable outlook reflect its solid financial profile, strong capital structure, and stable and predictable cash flow generation supported by long-term, fixed, take or pay agreements with strong credit quality off takers.
TGP's ratings also reflect the company's moderate exposure to regulatory risk and geographic and single-asset exposure.
Key Rating Drivers
Predictable and Stable Cash Flow: TGP's ratings reflect its low business risk that results from its stable and predictable cash flows, characteristic of gas transportation companies. The company derives its revenue from long-term ship-or-pay contracts that have an average remaining life of around 12 years with adequate credit-quality counterparties.
TGP has a nonexclusive build, own, operate and transfer (BOOT) contract to transport natural gas (NG) and natural gas liquids (NGL) from the country's main gas production formation, the Camisea field, to the main consumption area and the Peru LNG S.R.L. (BB-/Negative) export terminal. The BOOT contract determines fixed return on invested capital; it expires in 2033, but may be renewable in 10-year increments up to a maximum cumulative concession period of 60 years.
Adequate Capital Structure: TGP's ratings also reflect its conservative financial profile, supported by relatively low leverage, strong cash flows and a solid contractual structure. Fitch expects leverage to remain in the 2.0x range during the medium term.
As of Dec. 31, 2020, the company's total financial debt was approximately US$1.0 billion and it generated Fitch-defined EBITDA of US$486 million, resulting in gross leverage of 2.1x in 2020. Fitch's base case assumes the company will strengthen its capital structure by paying down debt starting in 2024, as its $850 million bond begins amortizing in five equal annual installments, in anticipation of the concession expiration in 2033.
Strong Regulatory Environment: TGP's exposure to regulatory and political risk is considered low, given the strength of the BOOT contract and the Peruvian government's initiative to promote NG consumption. TGP's assets were declared a National Critical Asset in 2019 and are strategically important for the country, as they connect the country's main gas production center, Camisea, to the main demand and export centers.
TGP transported 100% of exported NG and 95% of the country's total NG production. The BOOT agreement defines the maximum tariff TGP is allowed to charge users in NG transportation contracts. The BOOT also allows TGP to negotiate tariffs for access to its NGL pipeline. All tariffs are calculated in U.S. dollars and indexed to U.S. inflation.
Adequate Gas Supply: Peru's large natural gas reserves help mitigate supply risk, as the company connects producing regions to the main consumption and exporting centers. Single-source exposure is mitigated by the obligation of Pluspetrol S.A., the consortium operator, to prioritize NG supply to cover local demand, according to its concession agreement.
According to the Peruvian Ministry of Energy and Mines, Camisea Lots 56 and 88 and the nearby Lot 57 had approximately 11.5 trillion cubic feet of natural gas proved reserves as of YE 2018 or the equivalent to 23.4 years of supply.