Fitch Upgrades Empresa de Energia de Bogota's IDRs to 'BBB-'; Outlook Stable
Fitch Ratings has upgraded Empresa de Energia de Bogota's (EEB) foreign and local currency Issuer Default Ratings (IDRs) to 'BBB-' from 'BB+'. These rating actions apply to USD610 million of debt outstanding. Fitch has also upgraded EEB's national scale rating to 'AAA(col)' from 'AA+(col)'. The Rating Outlook is Stable.
The upgrades reflect EEB's improving financial profile, as a result of an investment strategy that has increased cash flow at a faster pace than debt. For the last 12 months (LTM) ended Sept. 30, 2012, the company generated USD798 million of consolidated EBITDA. This compares with an average EBITDA level of USD570 during the previous three years. During the same period, EEB's consolidated debt increased to USD1.9 billion from USD1.7 billion. The ratings upgrade also reflect the expectation of further strengthening of the company's credit metrics over the next few years, as more projects come online.
Stable Cash Flow Generation and Solid Business Position:
EEB's ratings reflect the company's diversified portfolio of assets, which have a low business-risk profile, and stable and predictable cash flow generation. EEB's low business-risk profile stems from its diversified portfolio of energy assets, which for the most part operate as regulated natural monopolies. EEB owns non-controlling majority participations in Colombia's second largest electric generation company, Emgesa (Fitch IDR 'BBB-'), as well as in the country's largest electric distribution company, Codensa (Fitch IDR 'AAA(col)'), which operates in the city of Bogota. The company also has a majority participation in Transportadora de Gas Internacional S.A. ESP (TGI), Colombia's largest natural gas pipeline transportation company, among other assets in Colombia, Peru and Guatemala.
All of EEB's assets are in a strong competitive position, which bodes well for the company's credit profile. The electricity and gas distribution and transmission/transportation businesses are regulated natural monopolies with stable cash flow generation and low leverage. The electricity generation business in Colombia is competitive, given the country's significant low-cost hydroelectric generation and overcapacity. EEB's energy generation business is also competitively well-positioned, given its low-cost profile and capacity generation mix of 85% hydroelectric and 15% thermo electric.
Moderate Leverage and Liquidity Position:
EEB's leverage is moderate and its liquidity is manageable. As of Sept.30, 2012, the company reported approximately USD286 million of cash on hand, of which USD136 million was at EEB. The company's consolidated leverage, as measured by total consolidated debt to EBITDA plus dividends received, was 2.4x during the LTM ended Sept. 30, 2012. During the LTM, EEB generated about USD800 million of consolidated EBITDA plus dividends. This compares with about USD1.9 billion of total debt.
Debt service is manageable, as most of the company's debt matures in 2021. Holding company debt as of Sept. 31, 2012, totaled USD816 million, consisting mainly of USD610 million of notes due 2021 and a USD100 million loan from Corporacion Andina de Fomento (CAF). The vast majority of the holding company's cash flow is generated from dividends received from investments in Emgesa and Codensa. Annual dividends to the holding company average approximate USD280 million per year; TGI has not historically paid dividends to EEB, yet, it transfers funds to EEB through intercompany loan interest payments.
Aggressive Growth Strategy:
EEB's growth strategy is considered somewhat aggressive. The company expects capital investments for 2012 through 2014 to total about USD1.4 billion. Not included in these capital investment expectations are the company's stated intention to participate in future bidding processes for green-field electricity transmission assets and a possible privatization of selected electricity distribution companies in Colombia.
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 project, namely its investments in Peruvian gas transportation and Guatemalan electric transmission infrastructure. In the long term, Fitch expects the company's consolidated leverage level to decline to approximately 2.5x to 2.0x as its expansion projects start operations.
A negative rating action or Outlook would be considered if leverage reached 4.0x and stayed above that level for a period of time.
A positive rating action or Outlook would be considered if the company significantly reduces its leverage for a sustained period of time.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'National Ratings - Methodology Update', Jan. 19, 2011.
Applicable Criteria and Related Research:
Corporate Rating Methodology
National Ratings Criteria
70 W Madison Street
Chicago, IL 60602
Maria Pia Medrano
+(571) 3269999 Ext. 1113
Daniel R. Kastholm CFA
Elizabeth Fogerty, +1-212-908-0526 (New York)