In its analysis, Moody’s listed four factors as its key rationale to upgrade EPM’s ratings:

• Moody’s Baa2 rating for the city of Medellín (with a stable outlook)
• the “high level of dependence” between the company and Medellín
• the strong probability of “extraordinary support” from Medellín if EPM faces financial distress
• “EPM’s intrinsic credit profile,” which is based upon Moody’s baseline credit assessment (BCA) of baa3

Moody’s also noted the significance of EPM’s ability to reduce its debt last year after dealing with both a “severe El Niño phenomena” (that caused drought and lowered hydropower production) and a major disruption to its energy plant in Guatape. The company improved financial metrics in the second half of the year were also aided by Colombia’s $2 billion USD sale of Isagen, which EPM had a stake in and benefitted from, as well as a recovery in generation operations.

Between the debt reduction and a belief that EPM is now better prepared to withstand risks posed by the extreme weather cycles, Moody’s felt comfortable upgrading the rating.

“The raising of the baseline credit assessment to baa3, from ba1, reflects management’s commitment to maintain a prudent financial policy as evidenced by the group’s commitment to maintain the consolidated debt to EBITDA below 3.5x on a sustained basis,” stated Moody’s. “This was the case for the last 12 months ending February 2017.”

The upgrade also reflects optimism surrounding EPM’s Ituango hydroelectric plant, which is reportedly about two-thirds complete and is expected to provide some 2,400 megawatts of capacity after it begins operating (with a projected online date sometime in 2018). Moody’s was encouraged by the utility’s announcement that it plans to remain patient in terms of pursuing growth until after the Ituango plant comes online.

“The raising of EPM’s BCA to baa3 captures Moody’s expectation of the successful commission of Ituango first phase’s four units — of 1,200 megawatts — starting end of next year,” stated the rating agency. “The significant progress in the construction of the Ituango plant (over 65%) and the completion of the more complex milestones underpin this anticipation … The stable outlook captures mainly Moody’s expectation for the successful commissioning of Ituango”

Photo credit: Empresas Publicas de Medellín (EPM)

The company has credited the good results to the consolidation of international investment while also noting that it transferred 595 billion pesos — a little over $205 million USD — to the city of Medellín to be used for social development.

Photo: EPM General Manager Jorge Londoño De La Cuesta in front of the utility’s headquarters in Medellín, Colombia. (Credit: EPM)

In total, Grupo EPM reported revenues of 10 trillion pesos from January through August, with two-thirds of that sum coming from domestic subsidiaries.

The other one-third is the product of international earnings, notably that coming from Aguas de Antofagasta, S.A. (ADASA), a water utility subsidiary in Chile that EPM bought in early 2015 for nearly $1 billion USD. The Antioquia company also has operations in Guatemala, El Salvador, Panama, Mexico, and Chile.

“‘For you, we are there’ is a phrase that brings the spirit of service and commitment with which EPM — as a 100% public organization — assumes its mission in society,” said Jorge Londoño De la Cuesta, general manager of EPM.

The general manager, who was appointed by new Medellín Mayor Federico Gutierrez Zuluaga in January, added that, “the financial results of the company are a reflection of responsible work that looks, with more income, to contribute to the quality of life of the community and the development of the territories in which it operates.”

On top of announcing the financial results, Londoño De la Cuesta also highlighted Fitch Ratings‘ recent confirmation of the company’s local and international credit ratings. “For the third consecutive year,” he said, “the investment-grade BBB+ rating for international bond issuances and AAA for the ability to pay in Colombia — the highest possible rating given in the country — are a demonstration of confidence in the strength of the company.”