Predictable and Stable Revenue: Transportadora de gas del Peru, S.A.’s (TGP) cash flow generation is considered stable and predictable, characteristic of gas transportation companies. The company’s revenues are derived from long-term ship-or-pay contracts with an average remaining life of around 18 years. The stability of cash flows is also supported by the company’s stable operating costs and its ability to pass through these costs to end users. All tariffs are calculated in U.S. dollars and adjusted by U.S. inflation.
Strong Competitive Position: The company’s competitive position is supported by TGP’s natural monopoly position given the high barriers to entry created by high capital requirements, economies of scale and geographic location of gas production and consumption centers. TGP has a 33-year non-exclusive build-own-operate-transfer (BOOT) contract to transport natural gas (NG) and natural gas liquids (NGL) from the country’s main gas production formation, Camisea, to the main consumption area and export terminal. Given the strong demand for NG in Lima, TGP is expanding its pipeline capacity to 920 mmcfd from 655 mmcfd currently.
Solid Financial Profile: TGP’s financial profile is considered strong for the rating category and is supported by its moderate leverage and strong cash generation supported by its contractual structure. As of year-end 2014, the company had a total financial debt of approximately USD1.1 billion and generated an adjusted EBITDA of approximately USD370 million, for a gross leverage of 2.9x. Going forward, Fitch Ratings expects the company’s leverage to decrease by at least half a turn over the next three years, as its extra capacity comes online. FCF may face pressure from changes to the company’s dividend policy.
Low Regulatory Risk: The company’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 in the country. TGP’s assets are also considered to be of strategic importance for the country, as they connect the country’s main gas production center, Camisea, to the main demand and export centers. In 2014, TGP transported NG used to produce approximately 45% of country’s electricity generation.
Adequate Gas Supply: According to the Ministry of Energy and Mines of Peru, as of Dec. 31, 2014, Camisea (Blocks 56, 57 and 88) had approximately 13.3 trillion cubic feet (tcf) of NG proved reserves. This bodes well for the company’s strategic importance to the country of Peru and matches the life of outstanding issuances.