EPM, Medellin Mayor Postpone Debate on Huge Business-Expansion Schemes; Hail Successful Bond Offering
Medellin-based multinational utilities giant EPM announced July 10 that it supports Medellin Mayor Daniel Quintero’s new decision to postpone debate on a proposal that would vastly expand EPM’s areas of business.
The proposal (see Medellin Herald July 3, 2020) would have EPM launch into whole new areas nationally and internationally, including highway and mass-transit infrastructure projects, manufacture and supply of renewable-energy systems and services, and a vast array of commercial services for consumers and businesses.
However, Medellin Mayor Daniel Quintero announced late last night (July 9) via his Twitter account that “social sectors and some businesses have asked us to withdraw the [proposed] project so that it can be discussed inside and outside the [City] Council in working groups. I always like to buy time and move fast but in this they are right. The project will be presented in October. In the meantime, we will create working groups with unions, citizens and social leaders to build together the future of our EPM.”
Then today (July 10), EPM announced via its official Twitter account that “we want to lead technological innovation processes, taking care of the environment, guaranteeing well-being and quality in services. That is why we support the decision of our Mayor Quintero and we continue with the purpose of working on this initiative.”
Prior to the new EPM and Mayoral decisions to postpone debate on the proposal, Medellin City Council President Luis Bernardo Vélez announced July 8 that “changing the corporate purpose of [EPM] requires in-depth study, and that task must be addressed before making any decision that affects the interests of citizens.”
In the proposal, EPM and the Mayor prudently warn that while public utilities need to expand and evolve in order to survive in an ever-more-competitive business world, EPM must be careful to avoid undercutting its exceptionally good bond ratings with both Colombian and foreign investors. The issue: Big expansions into new business areas potentially could violate existing bond covenants — possibly triggering massive, expensive prepayments — and potentially could harm loan terms and interest-rates on any future bond floats, the proposal adds.
Meanwhile, on the bond front, EPM general manager Álvaro Rendón López on July 8 hailed a just-completed peso/dollar bond-float totaling US$751 million.
The float included COP$635 billion in peso-denominated debt (equivalent to US$176 million) plus another US$575 million in dollar-denominated debt, with investors in the United States, Canada, Europe, Asia, Chile, Peru and Colombia eagerly gobbling-up the offer — actually demanding 3.4 times the total amount offered by EPM, Rendón noted.
“With this operation, EPM becomes the largest issuer of bonds denominated in Colombian pesos in this [international] market, this being its fifth operation which includes this [combined peso-and-dollar] financing method,” according to EPM.
“The placement results are a reflection of the credibility of local and international investors in EPM’s financial strength, even amid the current circumstances of uncertainty in the economy worldwide due to the effects caused by the Coronavirus pandemic,” Rendón said.
“The international bond issue received an investment grade rating, equal to that of EPM, by the firms Fitch Ratings and Moody’s,” EPM added. “For Fitch Ratings, EPM’s ratings are the result of the company’s low commercial risk, thanks to its diversification and characteristics as a provider of public services.
“For its part, Moody’s affirms that ‘EPM’s ratings reflect its consolidated and diversified income base by sector, with the electricity distribution business having the largest contribution to EBITDA.’”