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Colombia President Ivan Duque and Colombia Housing Minister Jonathan Malagón jointly announced June 12 in a nationally televised address that reverse mortgages will become legal here following regulations scheduled for publication in second-half 2020.

While reverse mortgages are common in North America and elsewhere – mainly enabling retired persons to generate an alternative source of retirement funds – such mortgages don’t yet exist in Colombia.

The new regulations will restrict reverse mortgages to persons 65 years and older, enabling homeowners to receive monthly payments or else one-time cash outlays.

“In this program, financial entities [will] acquire the home and pay a monthly [or a one-time] amount to the owners, but the owners of the property continue to inhabit it until the last day of their life,” according to the Housing Ministry.

Homeowners will have to negotiate terms of such mortgages with financial entities, according to the Ministry. Both the applicant and the beneficiaries must be over 65 years of age.

Three types of income would result, according to the Ministry:

1. A life annuity, which consists of a monthly payment until the person dies;.
2. Temporary income, pays a monthly value for a certain number of years; and
3. Single income, in which the entire value of the home is paid in a single installment.

“The value of the monthly amount will depend on several factors, such as the appraisal of the home, the age of the applicants and the selected reverse mortgage modality,” according to the Ministry.

A hypothetical example cited by the Ministry would involve a 75-year-old wife and her 70-year-old husband, who have a home valued at COP$200 million (US$53,000).

According to this example, the couple might receive a monthly annuity of COP$800,000 (US$213) for the rest of their lives.

At the death of the mortgagor, “the heirs can pay off the mortgage debt with their resources, or sell the property and pay-off the corresponding debt, or deliver the property [to the mortgagee] as payment for the funds that their relative received from the reverse mortgage,” according to the Ministry.


Medellin-based electric power giant EPM revealed June 11 in a filing with Colombia’s Superfinanciera oversight agency that its US$5 billion, 2.4-gigawatt “Hidroituango” hydroelectric plant in Antioquia won’t start-up until 2022.

The company had been planning for a December 2021 start-up of the first four turbine units. But the Covid-19 outbreak that is idling hundreds of project workers will result in construction delays, according to the company.

Despite the delay, “EPM expects to meet its firm energy obligations associated with the reliability charge within the deadlines established” by Colombia’s electric-power planning agency, CREG.

More Workers Recovering

On a related front, EPM announced June 11 that the first 50 workers of 295 infected with Coronavirus have now fully recovered.

After complying with 20-day isolation protocols and subsequent Covid-19 tests showing negative results of infection, the recovered workers are returing to their homes, according to the company.

“The 245 people who still carry the virus have mild symptoms or are asymptomatic, so they have so far not required hospital care associated with virus symptoms. These workers remain in isolation in Medellín, under medical supervision and care,” the company added.

Another 153 workers -- initially in precautionary, preventive isolation -- have now been found free of infection following double tests for Covid-19.

“These people already have the certificate that allows them to return to their homes, always with the accompaniment of the CCCI [construction consortium] and EPM [management] consortium,” according to the company.

“All of them have been working on the project for 90 days and, after this negative test against Covid-19, they will be able to return to their homes.

“In the next 50 days, another 800 workers are expected to be able to go to their municipalities to enjoy days-off. Before returning to work, they must comply with voluntary isolation and be re-tested. If in this process they are detected as carriers of the coronavirus, then they will be transferred to facilities conditioned for their individual isolation and observation and permanent attention by their EPS,” the company added.


Medellin-based construction giant Constructora Conconcreto revealed in a May 26 filing with Colombia’s Superfinanciera oversight agency that its first quarter (1Q) 2020 net income fell 34% year-on-year, to COP$20 billion (US$5.3 million).

Earnings before interest, taxes, depreciation and amortization (EBITDA) also fell 16% year-on-year, to COP$44.7 billion (US$11.9 million), while gross income fell 12%, to COP$169.7 billion (US$45 million), according to the company.

While the Covid-19 crisis hurt all construction companies in Colombia because of temporary quarantines and project shut-downs in March, most of the decline in profits this year came from extraordinary gains in 1Q 2019 that were absent in 1Q 2020, according to Conconcreto.

The profit variation “mainly corresponds to the results of 2019 that were affected by around COP$28 billion (US$7.5 million) by the dividends and profits for sale of the CCFC concession,” a one-time event last year, the company explained.

On the other hand, Conconcreto saw 1Q 2020 profit improvements from several other projects and investments “as well as a greater contribution from [commercial real-estate development consortium] Pactia,” according to the company.

Among initiatives to confront the Covid-19 crisis, Conconcreto renegotiated terms on its credit lines and accelerated certain divestments that have been in the works since 2018, according to the company.

“Since the start of the [divestments] plan in 2018, COP$274 billion [US$73 million] in cash has been received,” according to Conconcreto.

On the other hand, “the company has chosen to keep and pay the salaries of employees during the emergency period,” according to Conconcreto.

Construction backlog at end-1Q 2020 totaled COP$1.8 trillion (US$480 million), “which corresponds to around two years of operation,” according to the company.

Infrastructure projects account for 87% of the backlog and 13% in housing/building projects, according to Conconcreto.

In housing, “as of March 31, 2020, there are eight projects under construction, concentrated in Bogotá, Medellín, Neiva and Barranquilla,” according to the company.

These projects include 74 government-subsidized housing units “expected to sell on average in approximately nine months, 455 middle-class units expected to sell on average in 23 months, and 67 upper-income units expected to sell. on average in a period of 21 months,” according to Conconcreto.


Chile-based Latam Airlines – second only to bankrupt Avianca in Colombian air transport dominance -- announced May 26 that it filed for Chapter 11 bankruptcy in U.S. federal court.

The Covid-19 crisis – banning most air traffic -- forced Latam to absorb impossible losses, the company noted.

For example: Colombia has banned all regular passenger air transport for more than two months, with international flights continuing to be banned through at least August 31 and national flights banned through at least June 30.

“We want our stakeholders to know that we will continue to operate as travel restrictions and demand permit, paying our employees, meeting benefit obligations, and paying critical suppliers as well as respecting ‘Latam Pass’ miles and flight reservations as we work through the Chapter 11 reorganization process,” according to the company.

“In addition, all tickets, vouchers, or any form of credit will continue to be respected. We will also maintain partnerships with existing agencies, abide by corporate loyalty programs and sell tickets through our service platform, and you will be able to continue to interact with our customer service operators as you did prior to this announcement.

“The U.S. Chapter 11 financial reorganization process provides a clear and guided opportunity to work with our creditors and other stakeholders to reduce our debt, address commercial challenges that we, like others in our industry, are facing as a group. Latam will emerge from this process a more efficient, resilient, and ultimately strengthened airline group that is better placed to serve Latin America,” the company added.

The bankruptcy applies to Latam Group and its affiliates in Chile, Peru, Colombia, Ecuador and the United States, according to the company. "Entities incorporated in Brazil, Argentina, and Paraguay are not [in bankruptcy], due to the nature of their debt structure and current financial status,” according to Latam.

“Whether included in the filing or not, all of our affiliates are able to operate as travel restrictions and customer demand permit. Our cargo operations have been operating above capacity through these challenging times, and that will not change as a result of our reorganization.

“Through the Chapter 11 protection process, we will pay vendors for all goods and services ordered or delivered after the filing date in the ordinary course and according to our existing terms.

“A key part of the reorganization of the business is the right sizing and shape of the fleet to reflect the current and anticipated market conditions. To support these objectives and protect the value of our group, we have made the difficult but necessary decision to terminate certain leases that no longer serve the best interest of our business from an operational or financial standpoint,” the company added.

 


Medellin-based multinational utilities giant EPM on May 22 posted a COP$276 billion (US$73 million) net loss for first quarter (1Q) 2020 --solely because its debt accounting is in U.S. dollars, rather than in sharply-depreciating Colombian pesos.

“Due to accounting standards and due to the depreciation of the Colombian peso, understanding the debt that the company has in dollars, this accounting loss is generated by re-expressing it to pesos in accounting in Colombia,” according to EPM, 100% owned by the city of Medellin.

“This accounting loss is the result of the historical depreciation of the Colombian peso, which reached 24.03% in March as a consequence of the unusual behavior of world oil prices.

“In this sense, EPM must comply with accounting standards that imply that the depreciation of the Colombian peso leads to an increase in the debt balance in pesos due to the restatement of debt balances in dollars, even when the value owed in dollars does not change. The restatement negatively affects profits and generates high volatility,” the company added.

While depreciation hurts its accounting balance, “borrowing in dollars allows the business group to access the necessary funds to enable investments in infrastructure and growth, which are essential in generating employment,” the company explained.

Despite the accounting loss, EPM nevertheless maintained an investment-grade rating, actually “the highest credit rating among Colombian companies,” it noted.

During 1Q 2020, revenues rose 11% year-on-year, to COP$4.7 trillion (US$1.2 billion), while operating earnings rose 1%, to COP$1.2 trillion (US$318 million).

Earnings before interest, taxes, depreciation and amortization (EBITDA) rose 5% year-on-year, to COP$1.5 trillion (US$397 million), with an EBITDA margin of 32%.

“The pandemic caused by the Coronavirus did not impact these figures, since its appearance in the country occurred at the end of the quarter,” according to EPM.

Despite the accounting loss, “these results reflect the health and financial strength of the organization” thanks in part to portfolio diversification, added EPM General Manager Álvaro Guillermo Rendón López.

“Of the COP$4.7 trillion [US$1.2 billion] in revenue as of March 31, 2020, EPM parent company contributed 49%, foreign subsidiaries 34% and national energy and water subsidiaries 17%,” he added.

Meanwhile, profit transfers to the municipality of Medellín in 2020 -- which will reach COP$1.5 trillion (US$397 million) or about COP$29 billion (US$7.7 million) weekly – “generate a decrease in equity as of March. The resources for transfers, which allow for greater social investment in the Antioquia capital, are guaranteed given EPM’s liquidity situation,” the company added.

At the end of 1Q 2020, EPM Group’s assets totaled COP$57.2 trillion (US$15 billion), up 4%, while liabilities totaled COP$34.5 trillion (US$9 billion), up of 12%. Equity now stands at COP$22.7 trillion (US$6 billion), down 6%, according to the company.


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About Medellin Herald

Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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