EPM Wins Crucial Asset-Sales OK, Starts to Overcome Hidroituango Crisis
The Medellin City Council early this morning (October 30) voted 16-5 to approve EPM’s sale of an estimated COP$4 billion (US$1.25 billion) worth of non-strategic assets in order to fill a gaping fiscal hole left by problems with its under-construction “Hidroituango” hydroelectric dam here in Antioquia.
The vote followed dozens of public hearings, City Council subcommittee hearings, briefings with local, departmental and national politicians, regulatory agencies, interest groups, debt-funding sources and Wall Street analysts, plus massive public information campaigns.
The deal ultimately overcame objections from some Council members arguing that EPM would be better-off selling its half-interest in the telecom/internet company TigoUne rather than its 10% stake in Colombia power generator ISA.
EPM estimates that it should be able to complete the sales of all these assets by third-quarter 2019. Revenues from the sales will help EPM maintain its annual payments to the city of Medellin, its sole shareholder, as well as maintain its crucial investments in power, water and sewer infrastructures.
The approval also means EPM will sell its stakes in Chilean power and water companies and its small stakes in a handful of Colombian companies including Gas Natural de Oriente, Terpel, BBVA, Acerias Paz del Rio and others.
EPM also plans to slash some COP$1 billion (US$313 million) from operating costs and delay COP$2 billion (US$626 million) in investments in order to recoup an estimated COP$7 billion (US$2.2 billion) in lost electricity sales, repair costs and compensation costs from the three-year-delay in Hidroituango’s start-up.
In a question-and-answer document provided to the City Council and the public, EPM explained the rationale behind its sale decisions.
As to why the company decided against selling its Tigo-Une shares (also called “Une-Millicom”), EPM stated: “The approval of the sale of Une-Millicom would take more time, and the current situation demands greater agility to obtain the necessary resources for the development of the investment plan.”
Asked why it would sell its 10% stake in ISA, “if it is a profitable asset, even above other less strategic investments,” EPM stated: “As it is a non-controlling minority stake of 10.17%, EPM has no interference in the major decisions of ISA. Therefore, this investment does not contribute EBITDA [earnings before interest, taxes, depreciation and amortization] or income and its sale would not affect the covenants of the credit agreements and EPM bonds.
“Additionally, ISA is a highly recognized company in Latin America whose shares are listed on the stock exchange, so its sale has a high probability of execution. Finally, the sale of the shares of ISA would generate a significant amount of resources to EPM, which would be comparatively more favorable than the annual amount of dividends received annually, which on average in the period 2014-2018 represent approximately 3.5% annually on the capital that EPM has invested in ISA.”
Dam Nears Completion, Spillway Starts Operating
On another crucial front, EPM reported that the Cauca River is just about to pass over the engineered spillway at the Hidroituango power project, which will enable closure of the tunnel to the mechanical room — that room temporarily being used as an emergency diversion tunnel ever since the main diversion tunnel collapsed last April.
Once the mechanical room has been cleared of water, EPM can begin repairs to the project, hopefully leading to start-up of power production no later than 2021.