Fitch Affirms Grupo Energia Bogota’s Ratings at ‘BBB’

Fitch Ratings has reaffirmed Grupo Energía Bogotá S.A. E.S.P.’s (GEB) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB.’ Additionally, the agency has upheld GEB’s Long-Term National Scale Rating at ‘AAA(col),’ its long-term senior unsecured debt rating at ‘BBB,’ and its local bond rating at ‘AAA(col).’ The outlook for these ratings remains Stable.

Credit Metrics and Business Position

The affirmation of GEB’s ratings reflects the company’s steady cash flow generation, robust business position, and sufficient liquidity. Fitch anticipates GEB’s credit metrics to remain consistent with its current rating over the medium term. The ratings also consider GEB’s reliance on dividends from its financially solid subsidiaries to manage its debt obligations and the company’s ongoing growth strategy, including its aggressive dividend policy.

Fitch’s analysis indicates short-term pressure on EBITDA, with an expected gross leverage of approximately 4.1x in 2024, followed by a gradual reduction to an average of 3.5x, consistent with the ‘BBB’ rating category.

Leverage and Revenue Considerations

The appreciation of the Colombian peso against the U.S. dollar in 2024 has negatively affected GEB’s subsidiary, Gas Natural de Lima y Callao S.A. (Cálidda), due to foreign exchange exposure. Additionally, a reduction in dividends from Enel Colombia, estimated at USD 202 million, is expected to impact EBITDA in 2024. However, this will be partially offset by increased revenue from the transmission business and significant dividend payments from Enel Colombia in 2025, alongside retained earnings from the Argo subsidiary in Brazil in 2024 and 2025.

In 2025, contracted demand at Transportadora de Gas Internacional S.A. ESP (TGI) is projected to decline, leading to reduced revenue from the gas transportation business. No major acquisitions are expected in the near term. Consequently, Fitch forecasts GEB’s gross leverage to rise to 4.1x in 2024, with a decrease to 3.9x in 2025 and 3.5x in 2026.

Diversified Operations and Cash Flow Stability

GEB’s ratings are supported by its diversified portfolio of regulated businesses, primarily consisting of entities with strong market positions and solid credit profiles. The company operates in Colombia’s electricity transmission sector and participates in electricity generation and distribution through its associate, Enel Colombia. GEB also holds controlling stakes in energy assets functioning as regulated monopolies in their service areas. TGI, Colombia’s largest natural gas transportation company, is fully owned by GEB, which also has a 60% stake in Cálidda, the largest natural gas distribution company in Peru.

GEB’s operations benefit from business diversification, with subsidiaries that generally operate as regulated monopolies, contributing to stable and predictable cash flow. TGI is GEB’s most significant asset, expected to generate 47% of EBITDA from controlled companies in 2024. The electricity transmission business is anticipated to increase its EBITDA contribution in the medium term, supported by planned investments of approximately USD 637 million from 2024 to 2027.

Credit Quality and Regulatory Considerations

As an operating holding company, GEB derives its cash flow mainly from dividends from subsidiaries and non-controlling stakes in primarily investment-grade entities. This predictable income stream helps mitigate the structural subordination of dividends to GEB’s debt service obligations. Enel Colombia is expected to provide 53% of GEB’s dividends from non-controlling interests in 2024.

Fitch considers GEB’s exposure to regulatory risk as low to moderate, despite its concentration in regulated businesses within Colombia. Recent regulatory developments, including attempts by President Petro to influence public service regulations, present potential risks. However, tariff structures in Colombia have maintained a balance between company and end-client interests, and GEB’s geographic diversification and strong subsidiary business positions partially offset this risk.

Parent-Subsidiary Dynamics and Credit Comparisons

GEB’s credit profile aligns with its ‘BBB’ rating and is not constrained by its controlling owner, Bogotá, Capital District. Regulatory mechanisms, significant minority shareholders, and strong governance practices limit the parent’s influence on GEB, enabling Fitch to rate GEB two notches above Bogotá’s consolidated profile.

GEB’s ratings reflect a low business-risk profile consistent with an investment-grade rating. Compared to peers like Enel Americas S.A. (BBB+/Stable) and Promigas (BBB-/Stable), GEB’s ratings are lower due to its higher leverage, projected to average 3.5x, compared to Enel Americas’ leverage below 2.0x. GEB’s ratings are above those of Empresas Públicas de Medellín E.S.P. (BB+/Rating Watch Negative), which faces higher risk due to its dependence on the competitive electricity generation business and its connection to the City of Medellín’s credit profile.

Outlook and Potential Rating Actions

A positive rating action for GEB is unlikely in the near to medium term due to anticipated EBITDA pressures and potential capex increases. However, a sustained reduction in leverage below 2.5x after the completion of regulatory tariff resets and the investment program could positively impact the ratings.

Conversely, negative rating actions could result from sustained gross leverage above 4.0x, negative influence from shareholders leading to a weakened financial strategy, large acquisitions funded primarily by debt, or significant delays and cost overruns in major projects.

Liquidity and Debt Management

GEB’s liquidity remains adequate, supported by high cash reserves, predictable operational cash flow, and reliable access to bank and capital markets. As of June 2024, GEB held approximately USD 539 million in cash and equivalents, with an estimated cash flow from operations of around USD 730 million for the year. The company faces near-term debt maturities of USD 430 million in 2024 and USD 175 million in 2025, which Fitch expects GEB to refinance successfully through a mix of bank loans and capital market resources.