Business 653
Antioquia Proposes to Swap its Hidroituango Shareholding for Minority Stake in EPM
Thursday, 08 July 2021 12:19 Written by Roberto Peckham
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.
Update: Grupo Sura Debt Downgrade Added to That of EPM, ISA, UNE-EPM, Isagen, City of Medellin
Tuesday, 06 July 2021 13:48 Written by Roberto Peckham
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.
Colombia’s Short-Term Debt Ratings Suffer Downgrade, but Outlook Improves to ‘Stable’
Friday, 02 July 2021 09:13 Written by Roberto Peckham
Wall Street bond rater Fitch Ratings announced last night (July 1) that it has downgraded Colombia’s “Long-Term Foreign-Currency” (LTFC) and local currency “Issuer Default Ratings (IDR)” to ‘BB+’ from ‘'BBB-,’' but Colombia’s debt outlook is now revised to “stable,” up from the prior rating of “negative.”
“The [LTFC] downgrade reflects the deterioration of the 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 (GGGD) 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. Furthermore, 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 bond rater added.
The Covid-19 pandemic caused a 6.8% GDP contraction in 2020, caused the government debt-to-GDP ratio to hit 58.3%, up from 44.7% in 2019. “Fitch now expects government debt to GDP to continue to rise over the forecast period to 64.4% of GDP by 2023,” the analyst added.
While the Covid crisis caused a big jump in unemployment along with contractions in GDP, private-sector income and government tax revenues, “the pace of [Covid-19] vaccinations is now picking up, with around 23% of the population receiving a least one jab according to Our World in Data, and unemployment has fallen to 15% as some of the hardest hit parts of the economy begin to reopen,” Fitch noted.
Following a failed tax proposal in April that aimed to tax wealthier people and corporations in order shore-up government finances and extend benefits to Colombia’s poorest populations, “Fitch expects the government to reintroduce a revised tax reform package in July 2021 when the new session of Congress commences, and is targeting a benefit of around 1.2% of GDP on a net basis,” the analyst noted.
“However, Fitch believes that the majority of the fiscal benefit will be obtained only in 2023 --given reliance on corporate income tax measures -- while the government extends some pandemic related spending such as cash transfers into 2022,” the analyst added.
However, “the passage of any reforms will be difficult to achieve given the growing social pressures, the government’s low popularity and the upcoming elections, with congressional and presidential elections scheduled for March 2022 and May 2022 respectively,” Fitch noted.
Combined with further extension of government subsidies to the poor, “Fitch forecasts central government deficits of 8.2% in 2021 and 6.9% of GDP in 2022,” up from lower amounts in the last decade, the analyst added.
If the government succeeds in selling some state assets, then fiscal deficits could be reduced, Fitch added.
In addition, “the government has outlined an updated fiscal rule to be presented with its new tax reform proposal that will include a debt anchor of 55% of GDP with a limit of around 70% of GDP,” Fitch noted.
On a positive note, “Fitch has raised its GDP growth forecast to 6.3% in 2021, up from Fitch’s previous forecast of 4.9%. Fitch sees some upside to even the revised forecast if the Coronavirus pandemic outlook improves and social protests remain subdued, albeit there is a greater than usual degree of uncertainty surrounding forecasts,” the company added.
Inflation expectations likewise look good, Fitch added.
Meanwhile, foreign direct investment (FDI) “historically has covered around 70% of the current account deficit (CAD) and Fitch expects the favorable financing of the CAD to continue during the forecast period,” the analyst found.
On another positive front, “Colombia’s external liquidity has improved markedly over the last three years as a result of the central bank’s international reserve accumulation policy,” according to Fitch.
“International reserves rose to US$58.5 billion at year-end 2020, up significantly from US$52.7 billion in 2019. As a result, Fitch’s external liquidity ratio rose to 108% in 2021 from 89% in 2019. Additionally, Colombia maintains access to a flexible credit line with the International Monetary Fund for US$12.2 billion (out of a total program of US$17.6 billion),” the analyst concluded.
AkzoNobel Acquires Medellin’s Grupo Orbis, Pintuco Paints
Wednesday, 30 June 2021 11:55 Written by Roberto Peckham
Netherlands-based multinational paints-and-chemicals giant AkzoNobel announced June 29 that it just inked a deal to acquire Medellin-based multinational paints, piping and hardware giant Grupo Orbis.
Deal completion “is subject to regulatory approvals and is expected by end of this year or in early 2022” -- but financial details have yet to be disclosed, according to AkzoNobel.
Grupo Orbis operates in 10 countries in South America, Central America and the Caribbean, with 2020 reported revenue of COP$1.2 trillion (US$320 million).
“The transaction includes the 'Pintuco' paints and coatings business, 'Andercol' and 'Poliquim' (resins) and 'Mundial' (hardware distribution and services),” according to AkzoNobel.
The new deal “will expand our long-term position across South America by establishing us as a frontrunner in the Andean region and in Central America, where several countries are high on the global growth rankings for the next decade,” added AkzoNobel CEO Thierry Vanlancker.
The Grupo Orbis deal “follows-on from a series of recent acquisitions by AkzoNobel across the paints and coatings industry over the last 18 months, which have included Titan Paints in Spain and New Nautical Coatings in the U.S.,” according to AkzoNobel.
Following the new deal, AkzoNobel as a result will be operating in more-than 150 countries, with more-than 33,000 employees.
Sura to Manufacture Covid-19 Vaccines by 2023
Wednesday, 30 June 2021 11:36 Written by Roberto Peckham
Medellin-based multinational health-care and insurance giant Grupo Sura announced June 29 that it’s investing US$54 million in biotech researcher VaxThera in a project aiming to produce Covid-19 vaccines in Colombia by 2023.
“VaxThera advances the development of vaccines such as Coronavirus, dengue, Chikungunya, yellow fever, influenza and Zika,” according to Sura.
A new, 35,000 square meters manufacturing plant here -- capable of producing 100 million annual doses -- “will have the highest technological standards and human talent, where it will generate around 500 jobs at all levels of specialty,” according to Seguros Sura Colombia.
“In addition, the company will be able to implement processes such as fill-and-finish -- the process of filling and packaging vials with biologicals,” according to Sura.
The new project will be led by University of Wisconsin professor Jorge Emilio Osorio Benítez, who has more than 30 years of experience in the research and development of vaccines, according to Sura.
“VaxThera will allow the importation and commercialization of vaccines and other types of biologicals for Colombia and Latin America, as well as transferring the necessary technology to Colombia to produce and develop these types of products,” according to Sura.
Currently, VaxThera “is developing a universal vaccine against Coronavirus, which is in the pre-clinical testing phase in Wisconsin, and is expected to be ready by 2023. This will serve as a booster vaccine, which will facilitate procurement and distribution processes.”
In the meantime, “progress will be made in importing various types of vaccines necessary in the [Latin American] region -- together with strategic allies -- both for Coronavirus and for other types of tropical diseases,” according to the company.
“For VaxThera it is important to build a path that turns Colombia into a country capable of developing, managing and positioning vaccines from early stages to their final development, so as not to be dependent on imports,” added Osorio.
