Toll-road operator has seen losses since 2018 and has stopped participating in auctions, but says it has no problems accessing financing and financial leverage is declining
07/28/2023
After the failed attempt to sell the company in 2022, Arteris is now trying to resolve its financial problems and regulatory issues. The market’s perception is that the company is going through a moment of uncertainty and may need a capital injection from its controlling shareholders, Spain’s Abertis and Canada’s Brookfield, to make projected investments. The company says it has no problems accessing financing and financial leverage is declining and in check.
Sources in the financial market say that the group is struggling. Arteris has seen losses since 2018. Last year, the negative result reached R$1.6 billion. During this period, the group was absent from tenders for road concessions in Brazil.
Last year, Morgan Stanley began gauging potential buyers for the company’s assets. However, this sale process never materialized. Sources familiar with the matter said the shareholders did not want to move forward with talks with potential buyers because they were skeptical about which assets they wanted to get rid of and whether they really wanted to get out of the business.
In the infrastructure sector, there was also a perception that selling the group would not be an attractive move. With a flurry of new auctions, sources said it made little sense to invest in an asset full of regulatory liabilities whose concessions were nearing their end.
The market sees Arteris’ debt as a key problem. Although declining, leverage measured by the net debt-to-adjusted EBITDA ratio ended the first quarter at 3.94 times, while net debt for the period was R$9.7 billion.
In June, a Fitch Ratings report evaluating the company’s fifth debenture issue stated that “the company’s debt structure is considered weak due to its exposure to floating interest rates, refinancing risk, and limited reserve accounts.” The credit rating agency gave the issue an AA rating and changed outlook to negative from stable.
However, a Standard & Poor’s report from the same period maintained the AAA rating (with a stable outlook) of Arteris and its subsidiaries, pointing to an expectation of growth for the company – albeit with a shrinking of the group’s portfolio if the company fails to compete for new auctions. A source close to the group says that the Fitch report only analyzes one issue and therefore does not provide a complete perspective.
Another market source says that Arteris’ assets are not considered “distressed,” but believes that the company needs to go through a capital injection to continue investing.
Arteris said there are no difficulties in accessing credit, pointing out that in the first half of 2023, around R$900 million have already been raised with Export Development Canada (EDC) and UBS BB, under very favorable conditions, even in a scenario of contraction in the credit market. In 2022, debenture issues will total R$2 billion.
“The company has a robust fundraising strategy in line with its strategic planning to enable the fulfillment of its investment plan,” it said. The company also says that the level of financial leverage seen in the first quarter of 2023 is the lowest since the second quarter of 2020.
In addition, sources close to the group say that at this time there is no information on the need for contributions from shareholders to make investments feasible.
Another major obstacle for Arteris, according to sources, are regulatory problems that have not been easy to resolve.
The main one is related to concessions in São Paulo. In September 2022, Arteris and the São Paulo government signed a preliminary agreement, which defined a settlement between the parties and to solve multi-billion disputes from recent years. Under the agreement, the Intervias concession would receive a tariff reduction and an extension of the term – the closure, originally scheduled for April 2028, would take place in December 2039.
Since then, however, the signing of a formal contract has been postponed three times by the new management and is expected to be postponed a fourth time. A source close to the company says that the preliminary agreement gives security that there will be a solution, and says that what remains is to complete the calculations of the imbalances on each side.
Asked for comment, the São Paulo government’s Investment Partnerships Secretariat said that the final term was not signed due to the “complexity of the calculations carried out by the São Paulo State Transportation Agency (Artesp)” and that the deadline for signing should be extended again until August 16. Artesp declined to comment.
The market estimates that with the extension of Intervias, Arteris will expand its investment plan by about R$1.7 billion. On the one hand, this additional amount will reduce the pace of the group’s deleveraging. On the other hand, the company will extend the remaining life of its portfolio, which is relatively short.
Of the seven highway concessions operated by Arteris, five expire in 2033, representing the loss of more than 60% of the group’s total revenue – one of them, Arteris Fluminense, is in the process of relicensing and may still be subject to renegotiation with the federal government.
Brookfield declined to comment. Abertis did not reply to a request for comment.
*Por Taís Hirata, Mônica Scaramuzzo — São Paulo
Source: Valor International