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March 28 (The following statement was released by the rating agency)
Fitch Ratings has downgraded the following ratings for Corporacion Electrica Nacional S.A.
--Foreign and local currency Issuer Default Ratings (IDRs) to 'B' from 'B+';
--Approximately USD663 million of senior unsecured debt outstanding to 'B/RR4'
Concurrently, Fitch has affirmed CORPOELEC's national long-term and short-term
ratings at 'AAA(ven)' and 'F1+'.
The rating downgrade follows the downgrade of Venezuela's sovereign ratings to
'B' from 'B+' with a Negative Rating Outlook. The downgrade of the sovereign
reflects heightened macroeconomic instability and delays in the implementation
of policies to address rising inflation and distortions in the foreign exchange
(FX) market and the deterioration in Venezuela's external accounts. The Negative
Outlook signals that the lack of sustained and coherent policy adjustments could
lead to further erosion in external buffers, macroeconomic and financial
instability, and exacerbate the risk of social unrest given the high level of
CORPOELEC's rating reflects the company's linkage to the government of Venezuela
as a state-owned entity, combined with increased government control over
business strategies and internal resources. This underscores the close link
between the company's credit profile and that of the sovereign.
KEY RATING DRIVERS
CORPOELEC's ratings reflect the strong linkage to the government of Venezuela
(rated 'B', Outlook Negative by Fitch) evidenced in government ownership,
dependence on public funding to: i) carry on day to day operations, ii) honor
financial obligations and iii) finance capital expenditure, budget control
executed by Oficina Nacional de Presupuesto (ONAPRE) and the General Controller
of the Republic of Venezuela. The ratings also incorporate the company's
monopolistic condition as the sole provider of electricity services in the
country (generation, transmission, distribution and retail), a role that
highlights its strategic importance for the economy as a whole. The Negative
Outlook reflects the Negative Outlook on Venezuela's 'B' sovereign rating.
Ratings Linked to the Government
CORPOELEC's credit profile reflects its strong credit linkage with the Republic
of Venezuela as the latter is closely integrated within the public sector. The
company's sole shareholder is the Ministry of Popular Power for Electricity
(MPPE), which has a public mandate to operate the nation's electricity sector
according to its planning directives and heavily depends on public sector
transfers and subsidies for the sustainability of its operations. The company
receives explicit support from both the Central Government, through operational
and capital expenditure allocations contained in the nation's budget and from
PDVSA in the form of subsidized fuel costs. Since April 2013, the company is
controlled by a special committee ('Junta Interventora') appointed by the
Operational Results Impacted by Tariff Scheme
The state's control of CORPOELEC renders the entity as a vehicle for public
policy implementation and therefore highly exposes it to political interference
in its day-to-day operations. The tariff scheme was fixed between 2002 and 2013;
tariffs were recently increased, and the company expects further adjustments.
These changes are intended to make the sector more sustainable, but subsidies
are expected to remain in the near future. The tariff lag tends to increase
CORPOELEC's dependence on public funding going forward, which will increase the
linkage to the sovereign as its stand-alone credit profile deteriorates over
time due to low tariffs preventing the recovery of operational costs.
Sovereign Support Needed to Fund CAPEX:
CORPOELEC executed a USD3.3 billion CAPEX in FY 2012. Sources of financing came
from FONDEN, Fondo Miranda, Fondo Conjunto Chino Venezolano (FCCV) and PDVSA.
Future capital expenditures will depend on public funds as the company is
expected to continue posting negative EBITDA generation.
CORPOELEC is a vertically integrated public utility in charge of the operation
of the country's electricity assets and the provision of electricity services in
Venezuela. The entity was created in 2007 when the reorganization of the
electricity sector took place, reserving the rights to operate the electricity
sector to the State. The entity perfected a merger by absorption of all
generation assets and transmission, distribution and electric power retail
infrastructure in the country by the end of 2011, affording it an installed
capacity of 25,890 MW and a client base of 6.1 million users by December 2012.
CORPOELEC's monopolistic position conveys the company strategic relevance to the
country given the essential nature of the service provided and the electricity
sector's correlation with GDP growth.
The key rating triggers that could result in a downgrade include a downgrade of
the sovereign. Also lack of the needed government support for CORPOELEC's to
carry its operations, service its financial obligations and fund its capex could
result on a negative rating action.
Although unlikely, CORPOELEC's ratings could be positively affected by an
upgrade of the Sovereign.
CORPOELEC is a 100% government owned company created by virtue of the Decree #
5.330, with rank of Organic Public Law, published on July 31, 2007. This decree
mandates the nationalization and reorganization of the Venezuelan electricity
sector by centralizing all generation, transmission and distribution assets in
order to improve coordination in the use of primary energy sources, generation
dispatch and general infrastructure use, thus ensuring the accomplishment of the
Government's strategic plans for the sector and the economy as a whole.