Fitch downgrades EPM’s rating

Company News    Jul 16, 2021 3:06 PM

Fitch Ratings downgraded the local and foreign currency Issuer Default Rating (IDR) on EPM Group.

EPM’s rating was downgraded from BBB- to BB+, and maintained its rating watch in negative, Portafolio reported.

“The firm’s ratings reflect strong ownership and control by its owner, the municipality of Medellín, which was recently downgraded to BB+ with a stable outlook,” the rating agency explained.

Fitch added that the conglomerate’s business risk is low, because of its diversification and characteristics as a utility provider.

“The company’s ratings also reflect its somewhat aggressive growth strategy and solid credit protection measures backed by moderate projected leverage, solid interest coverage and an adequate liquidity position,” the rating agency said.

Hidroituango was another of Fitch’s main arguments for downgrading the rating. The entity explained that the ‘rating watch’ Negative is due to the “uncertainty” regarding the closure of the auxiliary diversion system blocked in the megaproject since April 2018 and the final cost overruns of the project.

“There is the possibility of major flooding downstream of the project until the diversion tunnel is closed. The likelihood of this occurring is remote, but the environmental, financial and reputational damage to the company could be significant. The expectation remains that the operation will start with 300MW by mid-2022,” Fitch said.

In addition, EPM said that the total investments of the Ituango Hydroelectric Project will be CoP$18.3T, representing a cost overrun of CoP$2.1T, La Republica reported.

Moody’s said that this could have a negative impact on the company’s credit rating.

EPM added that these resources will guarantee the entry into commercial operation of the first two generation units in 2H22 and the remaining six units between 2023 and 2025.

Bottom-Line: Colombia’s rating was lowered when it failed to pass a tax reform that most observers believed was necessary to mitigate the increased debt caused by Covid-19 and the resulting economic crisis. Entities tied to the sovereign like Medellin and EPM inevitably faced similar downgrades.

EPM continues to face difficult times, as this added to the ongoing corporate crisis affects the company’s plans.

Ah, and the government of Antioquia wants to have a stake in the company, to “avoid lawsuits”.

Things keep getting complicated for EPM and Medellin City Hall….

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