Peru's GyM sees revenue growth, lower debt in 2017

Wednesday, October 19, 2016

Peru's largest engineering company, Graña y Montero (GyM), which has been struggling to reduce both its debt load and project backlog, is expecting to benefit from a boom in infrastructure spending next year.

The company is working to cut back its working capital-related debt by shifting its US$4bn project backlog away from the mining services sector, which has been hit by slumping metals prices, Lima-based investment bank Credicorp Capital reported.

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GyM, which raised US$413mn from the sale of ADRs in New York in 2013 and sold US$205mn in bonds in February 2015, had US$827mn in debt as of June 30, about half of which is due in the next two years.

GyM will also benefit from Sempra-Techint's takeover of Odebrecht's 55% stake in the US$7.3bn southern Peruvian natural gas pipeline project, which should release US$4.2bn in project financing next year, said Credicorp analyst Héctor Collantes, who rates the GyM stock a "Buy."

The US$450mn addition of 20 new trains on line No. 1 of the Lima metro could boost Ebitda by 30-40% by 2019, Credicorp said, citing GyM CFO Mónica Miloslavich. The company is also bidding for the longitudinal highland highway together with Chile's Besalco, part of US$20bn in public-private partnerships (PPP), according to Credicorp.

Work could also get underway early next year on the US$200mn expansion of Lima's Vía Expresa expressway as project approval nears the final stage at the finance ministry, while the company's real estate division is also boosting sales, Credicorp said.

"GyM is positioned to capture growth from new PPP project auctions, particularly water treatment projects, the Lima Metro lines No. 3 and 4, and highway projects such as the longitudinal highway," Collantes wrote in a report. "With infrastructure growth set to take off in 2017 as promised by the new government administration, there is a greater abundance of growth opportunities for the company going forward."

President Pedro-Pablo Kuczynski, who took office July 28, has pledged to eliminate all red tape for US$25bn in delayed infrastructure projects, including railways, roads, airports and ports. He also announced plans to install connections for water services for 100% of the population by 2023.

GyM's profit jumped 163% to 105mn soles (US$32mn) in the first half even as revenue fell 25.6% to 2.80bn soles, after the company sold its 1.6% stake in the TGP natural gas pipeline and posted an FX gain. The company allocated US$103mn to capex in H1.

GyM, which also owns subsidiaries in Chile and Colombia, said it is working to clear a US$4.16bn project backlog, of which US$739mn will be executed this year, US$1.52bn in 2017 and US$1.59bn from 2018 on. The company's Peruvian projects include the Lima Metro and the Norvial and Survial tollroads, in addition to contracts abroad with companies including Cobre Panamá.