Fitch Ratings, New York, has affirmed and removed from Rating Watch Negative FertiNitro Finance Inc.’s ‘CCC’ rated US$250 million 8.29 percent secured bonds due 2020. The rating outlook is stable.
Fitch says conditions in Venezuela have not turned out as it earlier feared. Fitch was informed by FertiNitro that only 130,000 mt of Petroquimica de Venezuela, S.A. (Pequiven) urea offtake would be redirected to the domestic market in 2008. In 2007, FertiNitro faced unplanned shutdowns due to technical and power related issues.
The negative rating reflected Fitch’s concerns on the implications of the implementation of the Decree-Law 5,218 of March 6, 2007, which forces FertiNitro and other producers of nitrogen fertilizers in Venezuela to direct their output from global exports markets to satisfy the domestic market demand, where sales are subject to pricing dictated by the government. According to the offtake agreement between Pequiven and FertiNitro, Pequiven is obligated to re-sell, on a gradually decreased percentage, its 50 percent share of the plant’s production outside Venezuela at market prices. FertiNitro’s plant was originally conceived and developed to convert associated natural gas of Petroleos de Venezuela S.A. (PDVSA) into ammonia and urea, with export sales of these products generating dollar revenues for Pequiven.
Fitch said price controls could diminish the economic viability of FertiNitro. According to the law, the redirected output must be sold in local currency for the equivalent of approximately US$72/mt; this price ceiling is currently one-fourth of the international market price.
After six months of the decree-law in effect, FertiNitro’s sales have been stable and redirection of its offtake to the domestic market has been less than expected by Fitch in 2007. Fitch believes that some redirection of FertiNitro’s output might not cause project revenues to decrease substantially during the next years. However, there is still uncertainty associated with the ultimate volume of diverted output ordered by the decree. Furthermore, local demand for urea still remains unknown, and official data from the Venezuela Ministry of Energy and Oil shows that Pequiven’s wholly-owned plants in the Tablazo and Moron complexes are not producing sufficiently to satisfy domestic requirements. While local sales from FertiNitro have averaged 126,000 mt of urea since 2004, sales up to October 2007 grew to 175,000 mt.
Over the coming months, Fitch said FertiNitro plans to proceed with a capital expenditures program that will further strengthen their production capacity. As of October 2007, the urea trains produced at 89 percent of nameplate capacity, above 2006 levels. Higher prices in the global markets offset the reduced shipments that resulted from unexpected shutdowns of the urea and ammonia trains in October 2007. Ample accumulated cash balances enabled FertiNitro to pay the programmed semi-annual amortization payments of US$21.3 million. FertiNitro’s debt service coverage ratio is expected to average 1.77 times (x) in 2008.
FertiNitro 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 percent by a Koch Industries, Inc. subsidiary, 35 percent by Pequiven, a state-owned petrochemicals company, 20 percent by a Snamprogetti S.p.A. subsidiary, and 10 percent by a Cerveceria Polar, C.A. subsidiary.