2008-10-16 03:15:59 -
- Fitch Ratings has upgraded to 'B-' from 'CCC' FertiNitro Finance Inc.'s (FertiNitro) US$250 million 8.29% secured bonds due 2020. The Rating Outlook is Stable. The rating action reflects an adequate financial profile, recent improvements in operations and the expectation that past operational problems will gradually be resolved.
Although FertiNitro has experienced a highly favorable price environment and production
levels of ammonia and urea at near nameplate capacity, above 2007 levels, the project needs to demonstrate the capacity to operate efficiently on a sustained basis. Following this month's turnaround, FertiNitro plans to proceed with its capital expenditure program; Fitch expects these events to yield long term operational improvements.
After more than a year of the decree-law in effect, Fertinitro's sales have been stable and redirection of its offtake to the domestic market was less than initially expected by Fitch. Fitch has been informed by FertiNitro, that 160,000 Metric Tons (MT) of Petroquimica de Venezuela, S.A. (Pequiven) urea offtake would be redirected to the domestic market in 2008. According to the decree, the redirected output must be sold in local currency for the equivalent of approximately US$72 per MT. Going forward, Fitch believes that redirection of some of FertiNitro's output may have modest effects to the project's revenues. In addition, the shareholders have decided to provide certain additional capital contributions to FertiNitro to support the continued economic viability of the Project, which Fitch views positively.
Demand for urea in Venezuela is estimated by Pequiven to be approximately 400,000 - 500,000 MT. Pequiven's wholly owned plants in the Ana Maria Campos (ex-Tablazo) and Moron complexes are not producing sufficient urea to satisfy domestic requirements. In 2007, aggregate production level of these plants was under 150,000 MT. Fitch views the continued reliance on FertiNitro as a concern. While local sales from FertiNitro in 2007 were approximately 192,000 MT, sales up to August 2008 have been only 128,000 MT. Fitch will continue to monitor urea production in Venezuela as well as domestic demand.
Higher ammonia and urea prices have enabled FertiNitro to withstand growing operating cost pressures, primarily from natural gas prices. FertiNitro's debt service coverage ratio for 2007 was at 2.82 times (x) and as of July 2008 it was at 4.14x.
FertiNitro's current financial profile and prospective near-term operating performance are consistent with the 'B-' credit rating given that the project remains vulnerable to a variety of risks, principally including the reliability of the plant and the challenging Venezuelan sovereign and operating environment.
FertiNitro, located in the Jose Petrochemical Complex in Venezuela, ranks as one of the world's largest nitrogen-based fertilizer plants, with nameplate daily production capacity of 3,600 MT of ammonia and 4,400 MT 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.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings, New York
Azul del Villar, 212-908-0684
Sam Kamath, 212-908-0552
Carlos Fiorillo, 212-286-3356, Caracas
or
Media Relations:
Cindy Stoller, 212-908-0526
