KEY RATING DRIVERS
Emgesa's ratings reflect the company's strong financial performance, robust cash flow generation and the expectation of a moderate financial leverage after the Quimbo project is finished. Also factored into the ratings are the positive expected cash flows that will result from Quimbo's completion during the first half of 2015, the company's asset diversification, growth strategy and solid competitive position.
Solid Business Position
Emgesa's ratings are supported by the company's business position as one of the largest generation companies in
Strong Operational Results
Emgesa's commercial strategy matches its business profile and operating assets, which provides more revenue stability, predictability and lowers risk. The company's commercial strategy has aimed at selling around 70% of its volume at contracted prices for a one- to three-year term. During 2013, the company sold 72% of its energy sales under medium-term contracts. Although the energy generation business is more vulnerable to changes in hydrology and in prices of both energy and fuel, Emgesa's administration has demonstrated strong and conservative management, which has resulted in reasonably stable cash flows over time. EBITDA margins have been strong, varying from 58.8% to 62.7% in the last five years, a period in which the country experienced severe hydrology conditions.
Moderate Financial Leverage
Emgesa is in the midst of building Quimbo hydroelectric project (400 megawatt). Due to higher than expected capital expenditures in social and environmental items, the company adjusted its construction budget upwards by approximately 30%, increasing to
As of the last 12 months (LTM) ended
Robust Liquidity Position
Emgesa's liquidity position is comfortable. In
The company's long-term debt of
Although the company's dividend policy is a minimum of 50%, Emgesa's modest leverage together with solid cash generation have allowed the company to historically present a dividend pay-out-ratio of 100%, which is considered high, yet manageable.
Project Completion to Increase Cash Flow
Emgesa's cash flow generation is expected to benefit from a larger installed capacity. Following the completion of the Quimbo project, Emgesa's installed capacity will increase to nearly 3.442 MW. This should result in an EBITDA of approximately US900 million and EBITDA margin close to 65%. In
Strategic Importance for
Emgesa is indirectly controlled by Enel S.p.A.(IDR 'BBB+' Outlook Stable) which in turn controls Endesa S.A. (IDR 'BBB+'/ Outlook Stable) since 2009, through Endesa's subsidiary Enersis (IDR 'BBB+' /Outlook Stable) and Endesa Chile (IDR 'BBB+'/ Outlook Stable), which together control the company and have a 48.48% economic interest in the company and 56.4% of voting rights. Endesa's relationship with Emgesa is considered positive because of the transfer of know-how, technology integration and business practices. Emgesa is a sizable asset for the Endesa and represents 35% of Endesa's EBITDA in
Despite not having the control of Emgesa, Empresa de Energia de Bogota S.A. ESP. (EEB; 'BBB-' IDR) also participates in the company, with 51.51% of economic rights and 43.6% of voting rights. EEB also owns non-controlling majority participations in the electric distribution companies Codensa and Empresa de Energia de Cundinamarca, and in
Fitch considers a positive rating action unlikely in the near term. However, a material improvement in credit metrics that could be sustained over time and more conservative dividend policy would be seen as positive to the credit.
On the other hand, the main factors that individually or collectively could lead to a negative rating action are:
--A steep decrease in electricity prices, coupled with low generation and poor electricity demand;
--A sustained increase in leverage above 4.0x as a result of investments in the Quimbo project; and/or
--A change in the company's strategy that results in a more aggressive one in terms of leverage and capital expenditures.
Fitch affirms Emgesa's debt ratings as follows:
--COP$2.7 trillion bond program at 'AAA(col)';
--COP$250 billion bond issuance at 'AAA(col)';
--COP$736.760 million notes due 2021 at 'BBB'.
Additional information is available at 'www.fitchratings.com' and 'www.fitchratings.com.co'.
--'Corporate Rating Methodology'
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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