Fitch Affirms Interconexion Electrica at ‘BBB’, Outlook Negative

Fitch Ratings has affirmed the credit ratings of Interconexión Eléctrica S.A. E.S.P. (ISA), maintaining its long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB’ with a negative rating outlook. The agency also affirmed ISA’s $330 million USD senior unsecured notes due 2033 at ‘BBB’ and upheld the company’s national long- and short-term ratings at ‘AAA(col)’ and ‘F1+(col), respectively, with a stable outlook.​

Key Rating Drivers

Low Business Risk Profile: ISA’s ratings reflect a low business risk profile, characteristic of the power transmission sector, which contributes approximately 80% of the company’s consolidated EBITDA. The remaining EBITDA is primarily derived from road concessions in Colombia and Chile, which include mechanisms to ensure minimum income or extend concession periods if traffic is low. The telecommunications segment is expected to contribute less than 2% to ISA’s consolidated EBITDA.​

Parent-Subsidiary Linkage: Fitch rates ISA two notches above its parent company, Ecopetrol (rated ‘BB+’ with a negative outlook), due to ISA’s strong business and financial profile. Regulatory ring-fencing mechanisms, material minority shareholders, and a track record of strong governance practices limit Ecopetrol’s capacity to extract value from ISA. ISA’s funding and cash management policies are managed independently of Ecopetrol, and any changes in corporate governance, business, or financial strategy could pressure ISA’s ratings, particularly if there is a structural increase in its dividend payout ratio.​

Investments and Leverage: Fitch anticipates that ISA’s EBITDA leverage will peak at 4.5x during 2026, up from 3.7x in 2024, with EBITDA interest coverage around 4.0x over the rating horizon. The company’s free cash flow is expected to remain negative during 2025-2027 due to its capital expenditure program and a dividend payout ratio of 50%. ISA’s committed grid-focused investment program is projected to reach $22.2 trillion COP from 2025-2028, with approximately 83% concentrated in regulated transmission grids and 14% allocated to road concessions. Geographically, Brazil accounts for 52% of these investments, followed by Chile (18%), Colombia (15%), Peru (11%), and Panama (4%).​

Geographic Diversification: ISA’s cash flow generation is diversified across Latin America. Fitch estimates that over the rating horizon, approximately 38% of the company’s consolidated EBITDA will come from Brazil, 27% from Colombia, 15% from Chile, and 20% from Peru. Less than 1% of ISA’s consolidated cash generation is expected from Panama and Bolivia.​

Regulatory Risk: ISA’s diversification effectively hedges its exposure to regulatory risk, as most of its revenues are derived from regulated transmission grids. An upcoming regulatory reset in Colombia for the transmission business is expected during 2025-2026. While there is limited visibility on the final tariff scheme, Fitch believes the outcome will not significantly pressure ISA’s financial metrics, as the reset is included in the company’s consolidated revenues.​

Applicable Country Ceiling: ISA’s applicable country ceiling is that of Peru, rated ‘A-‘, as the cash flow generated by Peruvian subsidiaries covers more than 4.0x the company’s hard currency gross interest expense in Fitch’s forecast horizon. Therefore, a lowering of Peru’s country ceiling could affect ISA’s ratings, particularly in a multiple-notch downgrade scenario.​

Peer Analysis

ISA’s credit profile is comparable to regional peers such as Transelec S.A. (BBB/Stable), Consorcio Transmantaro S.A. (CTM; BBB/Stable), Sociedad de Transmision Austral S.A. (STA; BBB/Stable), Empresa de Transmision Electrica, S.A. (ETESA; B/Stable), Alupar Investimento S.A. (BB+/Stable), and Transmissora Alianca de Energia Eletrica S.A. (Taesa; BB+/Stable). All these companies benefit from a low business risk profile and predictable cash flow. ISA’s higher rating compared to Taesa, Alupar, and ETESA is mainly due to its geographic diversification.

ISA operates in Colombia, Brazil, Chile, and Peru, while Taesa’s and Alupar’s operations are concentrated in Brazil, and their ratings are negatively affected by Brazil’s ‘BB+’ country ceiling. ETESA’s ratings reflect delays in coupon payments, lowering the Government Related Entity (GRE) score to 15 from 50 with Panama (BB+/Stable). ISA has a similar scale of operations and EBITDA generation compared to Redeia Corporacion S.A. (A-/Stable), the sole transmission system operator and electricity transmission network owner in Spain.​

Rating Sensitivities

Negative Rating Action: Factors that could lead to a downgrade include a sustained increase in leverage above 4.5x on a consolidated or non-consolidated basis due to deteriorating cash generation or increased debt levels beyond Fitch’s base case scenario; regulatory changes that significantly pressure ISA’s cash flow; changes in the company’s business and financial strategy, particularly regarding dividend distribution practices and corporate governance; a negative rating action on Ecopetrol; or a multi-notch downgrade of Peru’s country ceiling.​

Positive Rating Action: Although unlikely in the short to medium term, a positive rating action may be considered if total consolidated leverage falls below 2.5x. The negative outlook could be revised to stable if Ecopetrol’s outlook is revised to stable from negative.​

Liquidity and Debt Structure

As of December 2024, ISA reported cash on hand exceeding $5.9 trillion COP, reflecting healthy internal cash flow generation, manageable debt amortizations, and increased access to local and international capital markets. Approximately 37% of this cash is restricted, primarily to cover contractual obligations in the road concession business. Cash on hand plus cash flow from operations is expected to cover ISA’s short-term debt by more than 1.25x, aligning with investment-grade companies. ISA’s long-term debt amortization schedule is spread until 2056, with manageable maturities at the holding company level for 2025.​

Issuer Profile

ISA is a Colombian holding company focused on energy transmission, road concessions, and telecommunications, with operations in six countries.

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