Companies 537
Medellin-based multinational utilities giant EPM announced July 27 that its first half (1H) net income hit COP$1.9 trillion (US$483 million), more than double the COP$717 billion (US$192 million) profit in 1H 2020.
Earnings before interest, taxes, depreciation and amortization (EBITDA) rose to COP$3.5 trillion (US$890 million), up from COP$2.8 trillion (US$752 million) in 1H 2020, while EBITDA margin hit 30% and net profit margin came-in at 16%, according to the company.
Gross revenues in 1H 2021 rose 26% year-on-year, to COP$11.7 trillion (US$2.97 billion), according to the company.
So far this year, EPM Group has invested COP$1.7 trillion (US$432 million) in infrastructure projects, of which COP$627 billion (US$160 million) correspond to the Hidroituango hydroelectric project in Antioquia.
Commenting on the results, EPM general manager Jorge Andrés Carrillo Cardoso stated: “These positive figures were achieved in part thanks to the community’s commitment to paying their bills for the public services, plus the improvement in operations due to the greater generation of energy from our hydropower plants -- which had high water inputs -- and also to higher energy sales.”
As of June 30, 2021, Grupo EPM total assets had grown 2% year-on-year, to COP$65.3 trillion (US$16.6 billion), while liabilities rose 4%, to COP$38.1 trillion (US$9.7 billion). The debt-to-EBITDA indicator for EPM Group closed at 4.0 in 1H 2021, compared to 3.9 for 1H 2020, the company added.
Medellin-based textile giant Coltejer revealed in separate July 15 and July 17 filings with Colombia’s Superfinanciera corporate oversight agency that it has decided to suspend production of non-woven fibers and begin a process to “reinvent” its whole business model.
“Taking into account the impact that the company has suffered due to issues related to [below-cost textiles and clothing] smuggling, the [Covid-19] pandemic and recent [violent ‘Comite del Paro’ strikes and road blockades] in the country, as of this date, the productive operation of the ‘non-wovens’ line is suspended,” according to Coltejer.
“In addition to the difficulty presented, we assume the situation as a challenge that allows us to transform the business and reinvent ourselves in response to the needs of the current market.
“The company is making every effort to resume its economic activity as soon as possible, of which notice will be given in a timely manner,” the company added.
In a follow-up filing July 17 with Superfinanciera, Coltejer revealed that shuttering the non-woven fibers production line will cut its monthly corporate-wide gross income by about COP$1 billion (US$262,000), “equivalent to 49% of current income.” Monthly profit losses from the non-woven-fibers shutdown would amount to COP$600 million (US$157,000), “equivalent to 19% of sales,” according to the company.
Earlier this year, Coltejer revealed it had suffered a full-year 2020 net loss of COP$94.6 billion (US$26.8 million), worse than its net loss of COP$24.9 billion (US$7 million) in 2019 (see Medellin Herald February 11, 2021).
Sales in 2020 also dropped to COP$74.8 billion (US$21 million), down from COP$141.9 billion (US$40 million) in 2019.
Coltejer also announced late last year (see Medellin Herald December 18, 2020) that it decided to abandon its pioneering textile factory in the southern Medellin suburb of Itagui, shifting its remaining operations to Rionegro, Antioquia -- and selling the Itagui properties.
In line with that shift to Rionegro, Coltejer announced today that it signed a commercial administration trust agreement with Credicorp Capital Fiduciaria SA as part of its Itagui property sale contract with Actual Corp Colombia SAS and Constructora Capital Medellín SAS. Coltejer simultaneously obtained a new loan from affiliate Coltejer Comercial SAS totaling COP$300 million (US$78,600), the company added.
EPM general manager Jorge Andrés Carrillo Cardoso announced July 14 that the latest capital cost estimate for the 2.4-gigawatt “Hidroituango” hydroelectric dam in Antioquia now stands at COP$18.3 trillion (US$4.8 billion), up COP$2.1 trillion (US$550 million) from the prior estimate.
On the positive front, Hidroituango has now recuperated physical setbacks suffered in April 2018 when a diversion tunnel collapse flooded and wrecked costly infrastructure in the machine room.
As a result of recovery work, Hidroituango is now 84.3% complete -- the same percentage of completion as just prior to the diversion-tunnel collapse three years ago, Carrillo said.
“This increased investment [for the recovery work] will be financed mainly with the internal generation of funds and the divestment plan in subsidiaries where EPM has no control,” according to EPM.
The first two generation units at Hidroituango will come online “in the second half of 2022 and the six units remaining between 2023 and 2025,” according to the company.
In a special visit to the site yesterday, Colombia President Ivan Duque added that EPM aims to start-up the very first Hidroituango power turbine “by June 2022 and, if we continue successfully with the schedule, we will have the second one around November 2022.”
Thanks to project recovery, “the cash flow [generated from electric power sales] between the years 2022-2061 continues to have a positive incremental Net Present Value (NPV) and an incremental Internal Rate of Return (IRR) higher than the cost of capital,” according to EPM – contradicting claims made by several project critics, including former Antioquia Governor Luis Perez.
Once fully operational at 2.4-gigawatts capacity in 2025, “the new plant will generate an average of 13,500 gigawatt hours per year [GWh/Year], with which it is expected to obtain commercial net revenues of between COP$1.5 trillion [US$394 million million] and COP$1.7 trillion [US$446 million] per year from 2025, depending on market conditions and prices,” according to EPM.
The hydroelectric plant will account for 17% of the entire nation’s power capacity, by far the single largest. Because of its zero-emissions status, Hidroituango also will provide a “significant contribution to compliance with the emission reduction commitments assumed by Colombia in the Paris agreements,” according to EPM.
“In times of drought, the new plant will substitute energy equivalent to a 750-MW thermal plant, with lower costs and cleaner energy,” the company added.
What’s more, under conditions of its tariff agreements, Hidroituango operation “will not have an impact on the rise in electricity rates, because in Colombia we are facing a competitive market,” the company added.
“With the financial strength and credit confidence of the EPM Group, the positive advances in the management of claims to insurers and reinsurers for contingencies, the internal generation of funds and the divestment plan that EPM's board and management are preparing to present to the Medellín City Council, in coordination with the municipal administration, we are able to leverage these new investments and the fulfillment of the schedule for the entry into operation and completion of the project,” Carrillo added.
To date, Hidroituango insurer Mapfre has paid EPM US$250 million under the “All Construction Risk” policy as well as another COP$16.9 billion (US$4.4 million) “Civil Liability” policy (which covers damages to third parties and community infrastructure resulting from the diversion-tunnel collapse) “and is advancing with the claim processes with the insurance and reinsurance companies,” according to EPM.
Commenting on the current construction work, EPM Vice-President William Giraldo Jiménez stated: “Among the most important works that are needed for the completion of Hidroituango are the recovery of the southern section of the machine room and the assembly of power generation units 5 to 8, as well as the definitive plugging of the right diversion tunnel and the auxiliary diversion gallery.”
In the northern section of the machine room, “progress is being made in the assembly of power generation units 1 and 2, with works such as concrete embedments and the installation of electromechanical equipment. At the site of units 3 and 4, demolition and clean-up tasks have already been completed,” according to EPM.
“The southern area of the machine room is used today for the unloading of oversized and extra-heavy equipment and, in turn, welding work is carried out with the assemblies of the ferrules.
“Since last December, replacement equipment has been arriving at the project to advance in the electromechanical assembly. Meanwhile, six of the 25 power transformers are already installed in place inside the cavern.
“We expect to start soon with the shielding of the pressure or vertical wells 1 and 2, an important work to strengthen these structures that lead the water from the catchments to the generation units,” the company added.
Antioquia Acting Governor Luis Fernando Suárez announced today (July 8) that the departmental government wants to swap its majority shareholding in the US$5 billion “Hidroituango” hydroelectric project for a minority share in Medellin’s electric-power giant EPM.
The proposed deal “seeks to avoid a judicial conflict that could also generate a prolonged and damaging confrontation between the main institutions in the region” -- that is, the Antioquia departmental government, EPM and the Medellin city government, as the city is the sole current shareholder of EPM.
The parties currently are involved in complicated lawsuits brought by EPM against the Hidroituango contractors, as well as counter-suits brought by the Hidroituango investor consortium. The suits potentially could financially cripple both EPM as well as the city of Medellin and the Antioquia departmental government.
Governor Suárez formally proposed the share swap via a letter to Medellín Mayor Daniel Quintero, EPM general manager Jorge Carrillo Cardozo and EPM’s Board of Directors.
“The government of Antioquia, the majority shareholder through [Antioquia development agency] IDEA in the Hidroituango [investors] society, is willing to sell its participation in [Hidroituango] to Empresas Públicas de Medellín (EPM), in exchange for a direct [shareholding] participation” in EPM, according to the letter.
EPM still would remain 100% publicly held, “as it should be and how everyone wants it to continue to be in Antioquia,” while corporate governance would remain “under the leadership of the Medellín Mayor’s Office,” according to the letter.
Governor Suárez added that the proposed deal would ensure that the Antioquia departmental government and the city of Medellin both enjoy a “fair and adequate proportion” of EPM’s profits, which currently provide nearly 25% of the city of Medellin’s annual budget.
“The minority participation of the [Antioquia] government, in addition to enabling synergies in the territory, would be a convenient reflection of the reality of a very important presence of EPM throughout Antioquia and would stimulate the strengthening of corporate governance,” the letter adds -- an oblique reference to severely compromised corporate governance as a result of Mayor Quintero’s bizarre handling of EPM’s top management and the resignation of EPM’s entire former Board of Directors last year.
The proposed shareholding swap arose because EPM, “as the constructor of the Hidroituango project within the framework of the BOOMT [build-own-operate-maintain-transfer] contract, has obligations with the Hidroituango [investor group] Society which have not been fulfilled and are the reason for several lawsuits," according to the letter.
Governor Suárez added that while he awaits a response from EPM, financial, legal and technical teams would be formed to “design the pertinent aspects and details and the future implementation” of the proposed swap.
Hidroituango construction continues apace, with the first power-output units scheduled to come on-line in late 2022 or possibly early 2023, followed by subsequent, additional power units scheduled to come on-line in 2023 and 2024. Once complete, Hidroituango would produce 2.4 gigawatts of power, by far Colombia's largest single electric producer.
Wall Street bond rater Fitch Ratings announced July 20 that it has added Medellin-based multinational financial/insurance giant Grupo Sura and banking giant Bancolombia to a growing list of Colombian companies and municipalities suffering debt-ratings downgrades because of Colombia-wide economic problems resulting from the Covid-19 crisis.
"This decision on the part of Fitch Ratings follows a review of the average credit quality of the company's portfolio and the transitory effects that the pandemic has had on the stream of dividends obtained from its investments in the financial and related services industry," including the Suramericana insurance division and the Sura Asset Management division with its pension, savings, investment and asset management subsidiaries, Sura explained.
The credit downgrade "is supplemented by [Grupo Sura's] interests as the main noncontrolling shareholder of Bancolombia," the company added, noting that Fitch has cut Bancolombia's long-term international rating to "BB+" with a "stable" outlook.
These downgrades were a "consequence of Colombia's sovereign rating being downgraded from “BBB -to “BB +” and its effect on the country's leading bank and other financial entities," Sura noted.
Earlier, Fitch announced a downgrading of the debt ratings of Medellin-based utilities giant EPM to "BB+" from "BBB-" and maintained its "Negative Rating Watch."
"EPM's ratings reflect strong ownership and control by its owner, the City of Medellin ('BB+'/Stable), which was downgraded to 'BB+'/Stable from 'BBB-'/Negative," according to Fitch. "The company's business risk is low resulting from its diversification and characteristics as a utility service provider. The company's ratings also reflect its somewhat aggressive growth strategy and solid credit protection measures supported by moderate projected leverage, healthy interest coverage and an adequate liquidity position.
"EPM's Negative Watch reflects continued uncertainty regarding the closure of Hidroituango's blocked Auxiliary Diversion System since April 28, 2018, and final cost over-runs of the [US$5 billion Hidroituango hydroelectric] project," according to Fitch. "The possibility of major flooding downstream from the project exists until the diversion tunnel is closed. While the likelihood of this is remote, the environmental, financial and reputational damage to the company could be significant. Fitch's expectation is that 300-MW of the project will be online by mid-2022."
The downgrading of EPM debt came on the heels of Fitch's similar rating cuts for Medellin-based electric-power giants ISA and Isagen as well as Medellin-based telecom-internet giant UNE-EPM (aka “Tigo-Une”), plus the city of Medellin's municipal bonds.
The corporate and municipal debt-rating cuts follow on the heels of downgrades to Colombia’s sovereign debt -- all caused by the Covid-19 crisis that triggered a huge decline in the national economy and employment, slashed tax receipts and forced massive government subsidies aiming to help the poor and working classes deal with the crisis.
Colombia’s national government had tried in early April to address this huge fiscal imbalance with a proposed tax hike on wealthier individuals and corporations.
But a clientelist-oriented Congress, which routinely hands out tax breaks to various interests in exchange for campaign contributions (as in all democratic nations) -- and left-wing politicians who cynically stoked violent protests in May and June -- weeks after the government had already discarded the tax proposal – have left the President Ivan Duque administration now trying to bring forth revised fiscal legislation, with a proposal due July 20, but carrying uncertain prospects.
Also hit by the new Wall Street debt-ratings-cuts are Colombia’s mostly stated-owned oil company Ecopetrol and its pipeline affiliate Ocensa, according to Fitch.
“The downgrade of Isagen’s and Tigo-UNE’s FC-IDRs [foreign currency issuer default ratings] 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,” according to Fitch.
However, Fitch affirmed Isagen’s and UNE-EPM’s local currency IDRs, “which remain one notch above Colombia’s country ceiling,” according to the company.
“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.”
The main reason for the downgrades “reflects the deterioration of 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,” according to Fitch.
“Colombia’s gross general government debt-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,” the ratings agency added.
