 |
January 28, 2008 |
|
|
|
 |
FERTINITRO FINANCE: Fitch Affirms CCC Rating on Secured Bonds Fitch Ratings has affirmed and removed from Rating Watch Negative FertiNitro Finance Inc.'s 'CCC' rated US$250 million 8.29% secured bonds due 2020. The Rating Outlook is Stable. The rating affirmation with a Stable Outlook reflects the political and operational risk, even in an environment of high urea and ammonia prices. The company informed Fitch that only 130,000 metric tons of Petroquimica de Venezuela, S.A. (Pequiven) urea offtake would be redirected to the domestic market in 2008. In 2007, FertiNitro faced unplanned shutdowns due to technical and power related issues. Uncertainty on production redirection to domestic sales and technical failures of the plant are still a concern. The Negative Rating Watch reflected Fitch's concerns on the implications of the implementation of the Decree-Law 5,218 of March 6, 2007, which forces the company and other producers of nitrogen-based fertilizers in Venezuela to direct their output from global exports markets to satisfy the domestic market demand, where sales are subject to pricing dictated by the government. According to the offtake agreement between Pequiven and FertiNitro, Pequiven is obligated to re-sell, on a gradually decreased percentage, its 50% share of the plant's production outside Venezuela at market prices. FertiNitro's plant was originally conceived and developed to convert associated natural gas of Petroleos de Venezuela SA into ammonia and urea, with export sales of these products generating dollar revenues for Pequiven. Price controls could diminish the economic viability of FertiNitro. According to the law, the redirected output must be sold in local currency for the equivalent of approximately US$72 per metric ton; this price ceiling is currently one-fourth of the international market price. After six months of the decree-law in effect, Fertinitro's sales have been stable and redirection of its offtake to the domestic market has been less than expected by Fitch in 2007. Fitch believes that some redirection of the company's output might not cause project revenues to decrease substantially during the next years. However, there is still uncertainty associated with the ultimate volume of diverted output ordered by the decree. Furthermore, local demand for urea still remains unknown, and official data from the Venezuela Ministry of Energy and Oil shows that Pequiven's wholly owned plants in the Tablazo and Moron complexes are not producing sufficiently to satisfy domestic requirements. While local sales from Fertinitro Finance have averaged 126,000 metric ton of urea since 2004, sales up to October 2007 grew to 175,000 metric tons. Fitch will continue to monitor legislative developments in Venezuela as well as domestic demand for urea, to take rating action as appropriate. Over the coming months, the company's plans to proceed with a capital expenditures program that will further strengthen their production capacity. As of October 2007, the urea trains produced at 89% of nameplate capacity, above 2006 levels. Higher prices in the global markets offset the reduced shipments that resulted from unexpected shutdowns of the urea and ammonia trains in October 2007. Ample accumulated cash balances enabled the company to pay the programmed semi-annual amortization payments of US$21.3 million. FertiNitro's debt service coverage ratio is expected to average 1.77 times in 2008. FertiNitro ranks as one of the world's largest nitrogen-based fertilizer plants, with nameplate daily production capacity of 3,600 metric tons of ammonia and 4,400 metric tons of urea. It is owned 35% by a Koch Industries, Inc. subsidiary, 35% by Pequiven (a state-owned petrochemicals company), 20% by a Snamprogetti S.p.A. subsidiary, and 10% by a Cerveceria Polar, C.A. subsidiary. |
|
|
||
|
Today's Top Stories have been selected from the Troubled Company Reporter - Latin America. To receive the Full TCR-LA please CLICK HERE.
