Fitch Ratings, New York, recently released updated ratings for FertiNitro Finance Inc., and said FertiNitro, the Venezuelan nitrogen producer nationalized by the country last year (GM Oct. 25, Oct. 18, 2010), has stated that it will continue to meet its debt obligations. Fitch says FertiNitro and state-owned petrochemical company Pequiven continue to work with relevant parties to reach agreement on the effects of the recent expropriation.
Fitch maintains FertiNitro Finance Inc.’s “CCC”-rated US$250 million 8.29 percent secured bonds due 2020 on Rating Watch Negative. The “CCC” rating reflects FertiNitro’s expected payment of $45.6 million in semi-annual debt service due April 1. The anticipated timely payment prevents further decline to the rating.
Fitch expects rating pressure to remain through 2011, as the project reaches its maximum annual debt service requirement of $91.5 million. The subsequent decline in debt service coincides with the maturity of bank debt separate from the secured bonds.
Due to a planned outage for plant overhaul in October and November 2010, the capacity factor for the urea plant declined to 67 percent in 2010 from 74 percent in 2009. While management projects the recent major maintenance will result in a 2011 capacity factor of 85 percent for the urea plant, Fitch projects the capacity factor will be more consistent with 2009 at 74 percent. Despite the reduced production in 2010, FertiNitro achieved positive cash flow resulting in a debt service coverage ratio of 1.1 times as urea prices rebounded in the last quarter of the year, resulting in an average price of $225/mt similar to the 2009 average price of approximately $224/mt.
Fitch notes that FertiNitro will continue to be exposed to volatility in urea and ammonia prices. Fitch has also expressed concerns that FertiNitro, per national decree, must sell urea at $36/mt in the local Venezuelan market. Mitigating this concern is that local sales were below management’s projections and were only 15 percent of 2010 urea sales. Notable increases in local sales could erode FertiNitro’s cash flow.
Fitch said FertiNitro continues to invest in infrastructure improvements which are important to stabilizing operations – with $9.5 million in capital expenditures planned in 2011. Specifically, FertiNitro will procure spare parts and upgrade water demineralization systems, and PDVSA will continue to improve the reliability and capacity of the methane gas pipeline for FertiNitro’s fuel supply.
Fitch notes a material decrease in annual debt service, from $91.5 million in 2011 to $35.5 million in 2012, and rising to $50 million by 2019. With a declining debt burden and continued stability in plant operations, Fitch projects some improvement in debt service coverage ratios, but continued variability with some years. It said FertiNitro reports that it benefits from the ability to pay PDVSA for gas supply up to 180 days after delivery, providing additional financial flexibility and cash flow relief.
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. Prior to the nationalization, FertiNitro was owned 35 percent by a Koch Industries Inc. subsidiary, 35 percent by Pequiven, 20 percent by a Snamprogetti S.p.A. subsidiary, and 10 percent by a Cerveceria Polar C.A. subsidiary.