Consistent with Fitch Ratings’ belief that a major acquisition by Empresa de Energia de Bogota S.A. E.S.P.’s (EEB) is unlikely in the near to medium term, the company publicly declared it will not be participating in the republic of Colombia’s attempted sale of Isagen S.A. E.S.P.’s (Isagen) controlling equity stake. Although EEB’s growth strategy is considered aggressive and reflected in the company’s credit ratings, Fitch did not incorporate the possibility of a major acquisition, such as Isagen, in EEB’s credit ratings.
In the case of Isagen, this declaration by EEB is consistent with Fitch’s belief that regulatory impediments would continue to hamper any possible major bid by EEB. Fitch viewed the possible acquisition of Isagen, if financed mostly by incremental debt, as a potential credit risk which is now behind it.
EEB has decided not to participate in the sales process of Isagen’s shares held by the Republic of Colombia (57.66% stake), despite the fact the government is attempting to reactivate the sales process. Under the current regulatory framework of the Colombian energy industry and restrictions of the local antitrust agency, the company would be forced to divest strategic assets if it participated in the sale. EEB will continue to pursue other expansion opportunities, both in Colombia and abroad in such countries as Peru, Brazil, Mexico, Canada, and others.
Fitch’s base case assumes the company will ramp-up capex spending in 2014-2017 to USD2.3 billion as it searches for growth opportunities both in Colombia and the rest of Latin America. The company spent USD1.8 billion in capex (excluding acquisitions) during 2010-2013. Fitch’s incremental capex expectations assume primarily green-field investments in the transmission and natural gas segments. Significantly large acquisitions hold the potential to result in negative rating actions if financed mostly with incremental debt.
Going forward, EEB expects to use debt at its subsidiaries’ level, cash on hand and a portion of its internal cash flow generation to finance its expansion projects. Given the aggressive capex forecast, Fitch expects leverage, defined as gross debt-to-adjusted EBITDA, to settle in the 3x level in the near- to medium-term. In the long term, Fitch expects the company’s consolidated leverage level to decline to approximately 2.0x-2.5x as its expansion projects start operations.
Additional information is available at ‘www.fitchratings.com‘.