CESP-Companhia Energetica de Sao Paulo 'BB-' Global And 'brAAA' National Scale Ratings Affirmed; Outlook Stable
SAO PAULO (S&P Global Ratings) July 5, 2019--S&P Global Ratings said today it affirmed its 'BB-' global scale and 'brAAA' national scale ratings on Brazil-based hydropower generator CESP-Companhia Energetica de Sao Paulo. The 'bbb-' stand-alone credit profile (SACP) is unchanged. The 'bbb-' SACP reflects our view that leverage metrics will remain at low levels regardless of the additional debt raised in the context of CESP's privatization because we expect the company to benefit from the operating efficiency initiatives that new management is gradually implementing, despite the constraint caused by the nearly single-asset nature of CESP's business. The ratings on the company remain capped by those on the Federative Republic of Brazil (global scale: BB-/Stable/B; Brazil national scale: brAAA/Stable/--), considering CESP's sensitivity to the domestic economy and because all of its assets and counterparties are located in the country. Following the privatization auction on Oct. 1, 2018, when the State of São Paulo sold its controlling stake to VTRM Energia Participações S.A. (not rated), we no longer see CESP as a government-related company. VTRM was established in 2017 to be the investment vehicle of Votorantim Energia, a subsidiary of Votorantim S.A. (BBB-/Stable/--; brAAA/Stable/--), and Canadian Pension Plan Investment Board (CPPIB; not rated) to explore opportunities in the Brazilian renewable energy sector. Although it also has two operational wind farms in northeast Brazil, we consider CESP a core subsidiary because it represents the bulk of the total assets. Given that VTRM is a joint venture, with no single shareholder having effective control, our analysis does not assume that CESP would be supported by either Votorantim or CPPIB. The stable outlook reflects that on the sovereign, given our view that the ratings on CESP are limited to our ratings on Brazil based on the company's sensitivity to the domestic economy and because all its assets and counterparties are located in the country. In this context, the 'bbb-' SACP, three notches above the issuer credit rating, provides a downward protection. Given that we cap the ratings on CESP at the sovereign level, if we were to downgrade Brazil in the next 12 months, we could take a similar rating action on the company. We don't envision a scenario in the near term that could lead us to lower the SACP. However, we could downgrade CESP if the company pursues a more aggressive financial policy, leading to net debt to EBITDA consistently above 2x. We don't expect an upgrade in the next 12 months, because our ratings on the company are capped at the sovereign level. A higher SACP is unlikely because the ratings are constrained by CESP's business risk profile, considering CESP's single-asset nature. CESP is a Brazil-based electric power generation company that maintains with three hydro plants, Porto Primavera (1.54 MW of capacity and concession rights until 2049), Jaguari (13 MW of installed capacity and concession rights until 2020), and Paraibuna (48 MW of installed capacity and concession rights until 2021), located in the state of São Paulo.
RELATED CRITERIA
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018
- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
- General Criteria: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013
- General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
| Primary Credit Analyst: | Alvaro Landi, Sao Paulo (55) 11-3039-9757; alvaro.landi@spglobal.com |
| Secondary Contact: | Marcelo Schwarz, CFA, Sao Paulo (55) 11-3039-9782; marcelo.schwarz@spglobal.com |
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