The Financiera de Desarrollo Nacional (FDN), a member of the Grupo Bicentenario, has announced its participation in the financial closing of the El Campano Solar Park. Located in Chinu, Cordoba, the renewable energy project is designed to strengthen national energy security and support the transition toward cleaner power sources.

The initiative involves the development, construction, and operation of a photovoltaic solar plant with an installed capacity of 128.8 MWdc (99.9 MWac). The facility is scheduled to begin commercial operations by the third quarter of 2027.

The financial structure includes a commitment from the FDN of up to $157.5 billion COP, consisting of senior debt and a bank guarantee. This contribution represents approximately 50% of the total project debt. The total investment for the project is estimated at $453.9 billion COP, utilizing a framework that combines private equity and long-term debt.

“The financial closing of the El Campano Solar Park represents a firm step in the consolidation of a cleaner, more resilient, and sustainable energy matrix for Colombia.” — Rafael Herz, acting president of the FDN

“The financial closing of the El Campano Solar Park represents a firm step in the consolidation of a cleaner, more resilient, and sustainable energy matrix for Colombia,” stated Rafael Herz, acting president of the FDN. “At FDN, we remain committed to mobilizing investment toward strategic projects that not only strengthen the country’s infrastructure but also generate positive environmental and social impacts in the regions.”

Revenue for the El Campano Solar Park is supported by a 15-year energy purchase agreement (PPA) with ISAGEN, a company maintaining a AAA credit rating. The contract operates under a “pay-as-generated” modality. Furthermore, the project is set to receive income via the Cargo por Confiabilidad (Reliability Charge) over a 20-year period, a mechanism intended to ensure long-term financial stability and debt service capacity.

The project is being developed by Atlas Renewable Energy in partnership with ISAGEN (BVC: ISAGEN). This collaboration is part of a broader joint strategy aiming to develop up to 1,000 MW of solar projects in Colombia by 2030.

In addition to its contribution to the Sistema Interconectado Nacional (National Interconnected System), the project is expected to reduce carbon dioxide emissions by approximately 4 million tons over its operational lifespan. This alignment follows national objectives regarding sustainability and climate change mitigation.

According to the FDN, the project integrates environmental, social, and governance (ESG) criteria into the financing decision-making process, focusing on the decarbonization of the economy and regional development.

The recently issued governmental decrees aim to reduce household electricity costs but limit mechanisms available to generators for balancing risk and cost across varying hydrology and market conditions. Specifically, the new policies introduce two key requirements: first, power generators are now required to sell at least 95% of centrally dispatched hydro output through fixed contracts; and second, the policies introduce new differentiated and capped Scarcity Prices. Under the new framework, Scarcity Prices for hydro, coal, and renewable generation are capped at 359 COP/KWh, down from approximately 900 COP/KWh, while thermal plants receive separate pricing.

President Gustavo Petro’s populist measures may please retail electricity consumers but imperils the health of Colombia’s electrical generation sector.

The Scarcity Price is a critical market signal, as spot prices exceeding this level trigger firm energy obligations (FEOs). By capping the Scarcity Price, the new regulation reduces the compensation paid to generators, which is intended to cover capacity availability during tight supply periods. This measure, according to Fitch, is expected to reduce returns on new firm capacity, thereby discouraging future investment. Simultaneously, the rule forcing generators to pre-sell 95% of centrally dispatched hydro output may reduce their flexibility to adjust contract coverage in response to changing hydrological conditions. This increased inflexibility raises the potential for costly spot purchases or penalties for generators during drought conditions.

The rated Colombian utilities with diversified assets, including Empresas Publicas de Medellin E.S.P (EPM)  (BB+/Negative), Isagen, (BBB-/Negative), Enel Colombia (BBB/Negative), and Celsia Colombia (BVC: CELSIA) (AAA(col)/Stable), have historically managed hydrology volatility through conservative commercial policies. Over the past four years, these companies have maintained an average of about 80% of sales via contracts, leaving approximately 20% exposure to spot prices even during price spikes. This discipline helped the companies navigate severe dryness conditions experienced in 2023–2024 without compromising credit strength. Fitch expects that if similar dry conditions recur under the new regulatory framework, higher energy procurement costs will weigh on profitability and cash flows, with limited scope for meaningful end-user tariff relief.

Signals for investment are especially critical ahead of the 2029–2030 FEO auction, which is scheduled to commence in early 2026. If these restrictive measures remain in place, auction outcomes could fall short of capacity expansion goals, as the reduced visibility on achievable returns increases developers’ hurdle rates and delays capital commitments. This trend could exacerbate the risk of future power shortages, given Fitch’s estimate that energy demand could exceed current FEOs by 4% to 5% between 2026 and 2028. Durable reliability depends on balanced market incentives that allow all technologies to recover costs and earn risk-appropriate returns. Designing scarcity pricing and contracting rules that preserve clear signals for investment, while enabling generators to manage hydrology risk, remains essential to sustain adequate firm energy and diversify the generation matrix.

Above photo: Electrical transformers en route to the Hidroituango Hydroelectric Dam in Northwestern Colombia. Each has a capacity of 112 MVA (million volt amperes) and will transform the generator output from 18 kilovolts to the grid distribution voltage of 500 kilovolts. Each is 4 meters high and weighs 110 tons when filled with oil. (Photo credit: EPM)

The Colombian government is evaluating the elimination or reformation of the Reliability Charge, a mechanism that compensates power generators for the availability of their assets. This charge is a significant revenue source for GenCos, particularly those with a focus on thermal power. The proposed changes are aimed at reducing electricity costs for consumers.

Energy Demand vs. Energy Obligations. Credit: Fitch Ratings.

Colombia’s energy matrix is highly dependent on hydroelectricity, which supplies between 60% and 70% of the nation’s power. The Reliability Charge was designed to encourage the expansion and diversification of the generation infrastructure by compensating GenCos for maintaining the capacity to fulfill Firm Energy Obligations (FEOs), which are assigned through auctions. The mechanism is intended to ensure a consistent energy supply, especially during periods of low rainfall, functioning similarly to capacity and power charges in other countries.

For Termocandelaria Power, which operates exclusively thermal generation assets, the Reliability Charge can constitute more than 20% of its total revenue and a larger portion of its operating cash flow. The company provides critical electricity capacity on Colombia’s Atlantic coast, which helps address demand peaks and energy volatility, mitigating shortfalls from hydroelectric plants and transmission constraints.

Other GenCos with more diversified portfolios and less reliance on thermal generation, such as Enel Colombia and Empresas Publicas de Medellin, receive an average of 10% to 15% of their total revenue from the charge. Isagen (BVC: ISG), which also has a diversified portfolio, is also in this group.

Installed Power Generating Capacity in Colombia. Credit Fitch Ratings.

The potential changes to the Reliability Charge come as the Colombian power sector faces increased stress. In recent years, electricity supply growth has not kept pace with demand, a trend attributed to environmental issues and conflicts with local communities. A drought in 2024 caused a spike in spot electricity prices, though FEOs were sufficient to cover the reduction in hydroelectric generation. However, a future drought could necessitate energy rationing.

Fitch estimates that from 2026 to 2028, energy demand could exceed current FEOs by 4% to 5%, following the last reconfiguration auction in May. Modifications to the Reliability Charge could exacerbate this shortfall by inhibiting GenCos’ capacity to fund capital expenditures.

Above photo: Turbine chamber at the Hidroituango hydroelectric dam. (Photo credit: EPM)

The agreement seeks to strengthen commercial ties between ISAGEN and Italian exporters within the renewable energy value chain. As part of this arrangement, ISAGEN has committed to participating in annual matchmaking events organized by SACE, where Italian companies will be considered for its procurement processes.

BNP Paribas CIB, the financier of this operation, is recognized in the global export finance market and as a key structurer of SACE-covered facilities worldwide, with a focus on sustainable transactions. BNP Paribas has maintained a presence in Colombia for over 50 years, providing financing solutions to clients locally and internationally.

Established in 1995, ISAGEN operates a diversified portfolio comprising 15 hydroelectric plants, 10 solar plants, and two wind farms, possessing a net effective capacity exceeding 3,000 MW. The company plays a role in Colombia’s energy transition and contributes to the country’s decarbonization targets, aligning with discussions at COP29.

This operation aligns with SACE’s strategic objective of promoting Italian exports and fostering partnerships in emerging markets. The focus is on facilitating long-term industrial collaborations in sectors driving the global energy transition.

Jenaro Laris Vázquez, director of SACE’s Latin America Office, stated that this transaction reflects SACE’s commitment to supporting Italian companies’ expansion into dynamic markets like Colombia, with an emphasis on renewable energy. He indicated that SACE aims to cultivate alliances where both ISAGEN and Italian enterprises demonstrate strengths. Matchmaking initiatives led by SACE are intended to facilitate new commercial relationships between ISAGEN and Italian exporters, potentially influencing future investment plans.

Arturo Mejía, ISAGEN’s financial vice president, commented on the financial milestone, noting it reflects confidence in ISAGEN’s stability and long-term vision. He stated that the transaction with BNP Paribas CIB and SACE represents a strategic step toward diversifying financing sources, enhancing financial resilience, and increasing flexibility for economic fluctuations. Mejía added that the financing enables ISAGEN to expand its supplier base, reinforcing its supply chain through partnerships with Italian companies capable of supporting its mission to deliver clean energy.

Jorge Valderrama, BNP Paribas’ territorial director in Colombia, remarked on the significance of supporting ISAGEN with this financing line in collaboration with SACE, characterizing it as a notable development for ISAGEN and the Colombian energy sector. He emphasized BNP Paribas’ commitment to providing strategic financial solutions that assist clients in leading transformations within key sectors contributing to Colombia’s economic growth.

ISAGEN Medellín. Photo credit: Loren Moss.

Though the El Niño weather phenomenon that began last year has significant consequences for the nation — particularly with water reservoirs near Bogotá falling to alarming levels — the New York-based rating agency noted in a recent report that the major electric generation firms have “successfully weathered low hydrology conditions…with only moderate impacts on profitability and liquidity,” largely due to their “high-quality diversified asset bases, healthy cash flow generations and adequate leverage.”

In it’s analysis, it expanded upon the dynamics that have been shaping the sector in recent months.

“Throughout 2023, El Niño placed considerable strain on Colombia’s predominantly hydroelectric-based electricity generation, which accounted for approximately 74% of the total energy produced throughout the year,” stated Fitch Ratings

“From December onward, the water flow into the nation’s dams has been declining, culminating in a record low in March 2024 at 45.6% below the historical average for the month. Data from XM Compañía de Expertos en Mercados S.A. E.S.P. (XM) indicates that the storage capacity of hydroelectric reservoirs hit 17,360Gwh/month. By April, the water levels in these reservoirs were at 28.6%, marginally over the critical 27% mark that could trigger energy rationing.”

It pointed toward Medellín-based public utility EPM’s ability to add 600MW online last fall when it brought two more units online at its Ituango mega-dam.

“This addition propelled Ituango as the country’s top hydro project in energy output, cushioning the rise in daily energy spot prices which averaged, 659COP/Kwh during 2H23, compared to 412COP/Kwh in 1H23,” noted the rating agency. “Termocandelaria Power S.A. increased capacity at the Termocandelaria plant to 555MW from its combined cycle project. Between January and April 2024, total generation in Colombia reached 27,521Ghw, 37% of which came from non-renewable sources, compared to 14% during the same period in 2023. Meteorological forecasts signal increased precipitation from May onwards.”

Looking more broadly, Fitch stated that Enel Colombia and Isagen, along with EPM, “adhere to cautious contracting strategies that enable them to reduce reliance on higher-priced spot market energy purchases” and “have created a cushion that has allowed them to cope with the ongoing drought conditions in 2024 and fulfill their firm energy obligations.”

With this backdrop and forecasters continuing to expect the El Niño period to soon be in the rearview mirror, Fitch expects even more investment into capacity-expanding initiatives this year.

“Colombian electric generation companies’ capex plans are focused on boosting installed capacity amid concerns that current energy supplies may not keep up with demand,” wrote Fitch Ratings. “EPM is prioritizing the completion of its Ituango hydroelectric project. Key components of this initiative include sealing the right-hand tunnel of the obstructed Auxiliary Diversion System and the anticipated launch of units 5 to 8 by 2027, which are expected to contribute an additional 1,200 megawatts of capacity. Enel Colombia and Isagen are setting their sights on advancing renewable energy initiatives, encompassing both solar and wind projects. However, some of these projects have been experiencing notable setbacks due to environmental permitting issues and negotiations with local communities.”

Photo: Hidroituango hydroelectric dam. (Credit: EPM)

Currently, Isagen is advancing in the works of the Guajira 1 and WESP 01 wind farms in Uribia, which will add 32 MW in La Guajira, and has solar initiatives such as the Llanos 4 and 5 projects of 38 MW, in Puerto Gaitán (Meta). The 100 MW Sabanalarga (Atlántico) project is also currently under development.

Isagen indicates that it will close the year with investments of close to 3 trillion Colombian pesos, among these different initiatives, reinforcing the matrix with 360 MW of renewable energy: close to 200 MW hydroelectric in operation during 2021, and 70 MW under construction (2 wind farms and two solar plants) that will come into operation in 2022 and 100 solar MW in 2023.

The downgrade of Ecopetrol’s, OCENSA’s and A.I. Candelaria’s foreign currency (FC) and local currency (LC) Issuer Default Ratings (IDRs) reflects the direct and indirect linkage of these companies to the sovereign rating of Colombia, which Fitch downgraded last week to ‘BB+’ from ‘BBB-‘ with a Stable Outlook.

The downgrade of Isagen and TIGO UNE’s FC IDRs reflects the cap imposed by the country ceiling of Colombia (‘BBB-‘), as these companies do not have substantial assets, offshore credit facilities, or cash held or generated abroad to reduce transfer and convertibility risk. Fitch affirmed their LC IDRs, which remain one notch above Colombia’s country ceiling. The downgrade of ISA’s FC and LC IDRs reflect its linkage with the Republic of Colombia, which owns 51.4% of the company. Fitch considers ISA’s two-notch differential above its parent appropriate.

Statement from Fitch Ratings reprinted as a courtesy to our readers.

Key Rating Drivers

The sovereign downgrade reflects the deterioration of the public finances with large fiscal deficits in 2020-2022, a rising government debt level, and reduced confidence around the capacity of the government to credibly place debt on a downward path in the coming years. Colombia’s gross general government debt (GGGD) to GDP is forecast to reach 60.8% in 2021, more than double the 30% level when Fitch upgraded Colombia back to the ‘BBB’ category in 2011. Fitch expects debt to continue to rise through 2022 and does not expect significant debt reduction over the medium term, leaving Colombia vulnerable to shocks. Fitch sees significant risks to the government’s fiscal consolidation plan, given the reliance on tax administration efforts and divestments, as well as the uncertainty of the impact of the pending tax reform.

Rating Sensitivities

Factors that could, individually or collectively, lead to positive rating action/upgrade:

• Public Finances: Achieving sustained primary fiscal balances consistent with a steadily declining GGGD to GDP ratio that enhances fiscal policy credibility;
• Macro: Higher sustained medium-term economic growth above Colombia’s historical averages of about 3.5%;
• Structural: Steady improvement in governance indicators that leads to improved social cohesion and reform momentum, improving Colombia’s structural fiscal position as well as medium term growth prospects.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

• Public Finances: A failure to achieve fiscal consolidation that leads to a significant deterioration in Colombia’s general government debt to GDP ratio relative to the ‘BB’ peer median;
• Macro: Diminished medium-term growth prospects well below Colombia’s historical potential of 3.5%, leading to continued high unemployment and poverty levels with social ramifications;
• External Finances: Sharp further increase in net external debt to GDP, raising external vulnerabilities.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579 .

The rating actions are linked to the recent downgrade of Colombia’s sovereign and the corresponding Country Ceiling.

ESG CONSIDERATIONS

Ecopetrol has an ESG Relevance Score of ‘4’ for Exposure to Social Impacts due to multiple attacks to its pipelines, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Ecopetrol has ESG Relevance Score of ‘4’ for Governance Structure, due to its nature as a majority government-owned entity and the inherent governance risk that arise with a dominant state shareholder. This has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors.

• Ecopetrol S.A. (NYSE: EC) — Colombia’s largest petroleum company, majority owned by the government
• Grupo de Inversiones Suramericana S.A. (Grupo Sura) — Colombia’s largest Insurance conglomerate
• ISAGEN, S.A. E.S.P. — A Colombian Energy and infrastructure provider controlled by Canada’s Brookfield Asset Management
• Oleoducto Central, S.A. (OCENSA).— Oil pipeline operator affiliated with Ecopetrol

Although the following two entities have ratings above that on Colombia’s sovereign rating, S&P downgraded them to ‘BBB-‘ from ‘BBB’ while assigning a stable outlook:

• Enel Americas S.A. — Electrical utility subsidiary of European utility conglomerate Enel.S.p.A.
• Emgesa S.A. E.S.P.— Wholesale electricity provider, also a subsidiary of Enel.

The ratings on both entities are higher than on Colombia’s sovereign rating, primarily because of the potential support they would receive in case of financial distress from their parent companies — Enel SpA (BBB+/Stable/A-2) in the case of Enel Americas, and Enel Americas for Emgesa.

S&P also lowered the issue-level ratings on OCENSA parent A.I. Candelaria Spain to ‘B+’ from ‘BB-‘. The ratings firm says that this is because they still see a notch differential due to its total reliance on subordinated dividend payments from its sole investment, OCENSA, which distributes them after funding its operating and financial needs.

S&P also affirmed the ‘AA’ rating on toll highway developer Sociedad Concesionaria Vial Montes de María S.A.S. (Puerta de Hierro). The outlook remains stable.

The latter rating action follows the failure of the government’s fiscal reform proposal amid high spending pressures, resulting in a sharply lower likelihood of Colombia improving its fiscal position following a recent and marked deterioration. Given high external vulnerability, comparably weak economic profile–balanced by adequate institutions and monetary credibility–Colombia’s debt will stabilize at around 60% of GDP during 2021-2024 and will post relatively wide fiscal deficits. These factors are no longer consistent with an investment-grade foreign currency rating (readers may refer to S&P’s “Colombia Long-Term Foreign Currency Rating Lowered To ‘BB+’ On Persistent Fiscal Weakness; Outlook Stable“, published on May 19, 2021, for further details).

This is because according to Standard & Poor, these firms continue to be exposed to Colombia’s sovereign risk given that they operate in what S&P deems highly regulated sectors (dependent on rate adjustments approved by government regulators) and that demand for their services is in some cases correlated to the country’s GDP growth pace. Consequently, S&P believes the entities could suffer from heavier regulation in a sovereign stress scenario, and wouldn’t be able to generate or maintain sufficient cash to honor their financial obligations under a sovereign default scenario.

Ecopetrol

This is the case for Ecopetrol, of which Colombia’s government is a controlling shareholder. Therefore, ratings on the company and its subsidiaries move in tandem with those on the sovereign. In S&P’s view, the final rating on Ecopetrol is capped at the level of the ‘BB+’ foreign currency rating on Colombia, given the ratings firm’s expectation that the government could have a tendency to increase taxes or dividends if it faces fiscal or external stress, which could restrict Ecopetrol’s financial flexibility. Additionally, S&P’s assessment that the company has a very strong link with the government also limits the rating. As a result of the downgrade of Ecopetrol, S&P took a similar rating action on its subsidiary, OCENSA, because the ratings agency doesn’t believe there are meaningful regulatory mechanisms or other structural barriers that restrict the parent from accessing the subsidiaries’ cash flows in a scenario of distress. In addition, Ecopetrol is OCENSA’s main client, representing more than 80% of its revenue in 2020.

A.I. Candelaria Spain

S&P also lowered the issue-level rating on Candelaria’s notes, given 100% of its equity interests in OCENSA and its total reliance on subordinated dividend payments from the latter entity, which distributes them after funding its operating and financial needs. In addition, given that OCENSA is not publicly traded, it might be difficult for Candelaria to liquidate its investment if needed, and for S&P to forecast asset valuations relative to debt with certainty. The rating on Candelaria’s notes also captures the existing governance principles contained in the shareholders’ agreement whereby Candelaria holds veto powers over OCENSA’s material decisions such as business plans, large investments, and changes to the dividends policy.

Isagen

Isagen sells about 35% of its energy to distributors, which have their rates set by the regulator. Therefore, S&P says that it believes payments to Isagen–in case of a regulatory interference in distributors’ rates–could deteriorate. In addition, Isagen sells a portion of its output on the spot market, which could also be at its regulatory floor amid recession. Therefore, the sovereign rating caps the rating on Isagen, in S&P’s view.

Grupo Sura

S&P believes that Grupo Sura wouldn’t pass a Colombian sovereign default stress test scenario. The sovereign rating cap and risk to Grupo Sura in a sovereign default scenario reflect the high correlation between the company’s assets and dividends, and the country’s economy, because around 40% of assets operate mostly inside Colombia. The company is exposed to Colombia’s financial system because Grupo Sura has a stake in Bancolombia, which represents approximately 25% of the dividend stream. S&P says this limits the rating on Grupo Sura to the sovereign level because it is highly likely that a sovereign default would entail a significant shock to the country’s financial system.

Enel Americas

S&P predicts around 35% of Enel Americas’ EBITDA to come from Colombia in 2021, followed by Brazil (about 45%), Peru (15%), and Argentina (5%). Although Enel Americas’ debt repayment capacity remains stronger than those of the sovereigns where it operates, mainly because of the potential support it would receive from its parent company Enel in case of financial distress, the company’s downgrade reflects its sensitivity to deteriorating country risks.

The rating action on Emgesa follows the one on Enel Americas, given that the former plays an important role in the latter’s strategy in Latin America. Therefore, S&P expects the latter to support Emgesa under any foreseeable circumstance, including a hypothetical sovereign default of Colombia.

Puerta de Hierro –  Sociedad Concesionaria Vial Montes de María S.A.S.

S&P affirmed the rating on Puerta de Hierro as it reflects the guarantor’s creditworthiness. This is because Puerta de Hierro’s notes benefit from an irrevocable financial guarantee for interest and make-whole premium payment, in respect to the maximum guaranteed principal amount and for up to $350 million on principal from the US Government’s Development Finance Corp. (DFC). However, S&P revised downwards the project’s operations phase stand-alone credit profile to ‘bb+’ from ‘bbb-‘ because they consider the creditworthiness of the project’s main offtaker (Agencia Nacional de Infrastructura) to be one notch below its ‘BBB-‘ local currency rating on Colombia for the following reasons:

• There are no cross-default clauses linking these obligations with sovereign debt;
• S&P views the reporting of ‘Vigencias Futuras’ and other contingent liabilities as transparent because the government explicitly recognizes payment obligations and contingent liabilities that arise from this transaction. However, the government doesn’t report these 4G Highway-related obligations as sovereign debt.

Outlook

The stable outlook on these entities mirrors that on Colombia. The ratings on the latter pose a limitation on credit quality of corporate and infrastructure entities, given their exposure to sovereign risk. Therefore, S&P expects the ratings on these entities to move in tandem with the sovereign ratings in the next 12 to 18 months.

The stable outlook on Enel Americas mirrors that on Brazil and Colombia, its two main markets. Ratings on Emgesa are the same as on the parent and would move in tandem with the latter.

The stable outlook on Puerta de Hierro’s notes reflects S&P’s expectation of full coverage for the debt repayment given DFC’s financial guarantee. Therefore, the outlook on project’s notes reflects that on the US rather than Colombia. Moreover, the stable outlook reflects the guarantee coverage of over 60% stemming from the appreciation of the Colombian peso.

Downside scenario

In the next 12-18 months, S&P says it may downgrade these companies in case of a similar rating action on Colombia. The firm could lower the sovereign ratings if the potential long-term damage caused by the pandemic, other domestic developments, or new external shocks, prevent the Colombian economy from recovering in 2021 and results in lower-than-expected GDP growth in subsequent years. A perceived deterioration in Colombia’s institutional effectiveness, such as the inability to find political and social consensus to sustain growth and the country’s fiscal profile, could also translate into a downgrade.

S&P might also downgrade Enel Americas in case of a negative rating action on Brazil or if it believes that the company has become a less integral subsidiary for Enel. In such a case, they say they would also downgrade Emgesa.

S&P could lower the rating on Puerta del on Hierro in the next 12-24 months if DFC’s credit quality weakens, which could happen if S&P lowers the rating on the US or the relationship between the US government and DFC weakens.

Upside scenario

In the next 12-18 months, S&P indicates it could upgrade these companies if it takes a similar action on the sovereign rating on Colombia, while everything else remains equal. This can occur if there is faster-than-expected economic growth, coupled with structural fiscal measures, which reduce Colombia’s fiscal financing gap, lower the debt burden, and strengthen public finances. A larger and more diverse export sector, helping to reduce external vulnerability and strengthen economic resilience, could also result in the upgrade over the middle to long term.

In the next 18 months, S&P also says it could raise the rating on Puerta de Hierro’s notes if it either raises the rating on the US or if S&P believes the relationship between the US government and DFC strengthens.

See also: Colombians Take To The Streets To Protest, Lambast President Duque’s Fiscal Reform Package

The term ‘junk’ always appears melodramatic; after all it’s only a few letters (BB+) and Finance Minister Restrepo was quick to state that Colombia would still be able to obtain the external financing it needs. However, the psychological impact is quite clear. S&P, after the tax bill was proposed a few weeks ago, reiterated their BBB- rating but now they have changed their tune…

“The downgrades follow the withdrawal of a fiscal reform introduced to congress in a context of high spending pressures, which has resulted in a significantly lower likelihood of Colombia improving its fiscal position following a recent and marked deterioration.”

The big question is what Fitch (BBB-) & Moody’s (Baa2) chose to now do. Will they wait to see what is contained within ‘Tax Reform II’ when it is resubmitted? The issue is that there is little clarity on when that will be. Congress will shut down for the holidays in just over a month and there has been no progress report on the behind-the-scenes negotiations taking place.

On the bright side, S&P improved their outlook from Negative to Stable as the economy continues to reopen. The government is aiming for near normality in 2H21 and yesterday announced that the frontiers with our neighbors will be opening soon, although some are questioning that in the case of Brazil which is still bedeviled with problems.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

One doubts that the already emboldened protesters will directly add this to the list of achievements. The government has already offered subsidies on university education and a youth employment program – however indirectly they are making inroads, and they show few signs of stopping. Yesterday the next battleground—the health reform—was voted down in Congress, so that is one less thing to worry about.

That is why it is uber-urgent to get ‘Tax Reform II’ into the public forum. The government needs to show they mean business and are seeking equality. This  may calm the situation if well explained, and also prevent the other ratings agencies from taking adverse action. It doesn’t have to be a picture-perfect reform, just one that gets the job done in as least a painful form as possible.

________________________________________

Ironically yesterday there was a very successful bond auction as Isagen issued a total of $600 billion COP ($160 million USD) in bonds (5-20 years). Overall demand was at $220 million USD and it showed that there is still plenty of demand for Colombian paper.

Unfortunately, that was scheduled to be followed by another bond issuance today by Bancoldex however events have overtaken them and the offer has been postponed:

“The change in the rating of the nation is an event occurring after the publication of the notice of offer, which is beyond the control of Bancóldex and that materially affects the financial conditions under which the placement of the ordinary bonds offered would be carried out”

________________________________________

This one brief statement by Bancoldex is a precursor of what the markets may be facing over the next 24 hours. The peso may well struggle and the COLCAP is likely to be nervous. Much will depend on Fitch. Moody’s has Colombia 2 notches into Investment Grade however if Fitch decides to take action there will be a lot of concern.

________________________________________

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops

These acquisitions are expected to reinforce Isagen’s hydroelectric matrix, making it more resilient to climate change and contributing to the country’s energy transition. The generator also announced decisive progress on the Guajira I project, meeting construction schedules in its buildout of the 20 MW wind farm on Colombia’s Atlantic coast set to also go online in early 2022.

The two solar projects are developed by Trina Solar and will add 52.4 MWp of renewable energy to Isagen’s 90% hydro / clean energy matrix.

*MWp: Megawatts peak. Peak watts (Wp) is the unit of measurement for the output of a solar panel. It reflects the delivery of 1 watt of electrical power given the correct insolation conditions and orientation. Source:  https://www.worldenergytrade.com/index.php/component/seoglossary/1-energia/mwp