ISAGEN, S.A. E.S.P.

The stable outlook on the company for the next 12 months reflects both the one on the sovereign and our expectation that ISAGEN will maintain its conservative commercial strategy, with the majority of its output already sold through contracts, while maintaining a surplus to cover for adverse hydrological conditions. However, we expect debt to EBITDA to remain at 2.5x-3.0x and funds from operations (FFO) to debt between 20% and 25%, while ISAGEN upstreams excess cash to its shareholders. We could take a negative rating action on ISAGEN in the next 12 months in case of a downgrade of Colombia. A downward revision of ISAGEN's stand-alone credit profile (SACP) is unlikely, unless the company adopts a more aggressive commercial strategy, or

...Commercial strategy and hydrology risk. ISAGEN, S.A. E.S.P. has been adhering to a more conservative commercial strategy since the drought season that affected Colombia in 2016. On one side, as the company has been selling a lower amount of electricity through contracts in order to protect itself against poorer hydrological conditions, it also leaves ISAGEN more exposed to spot market prices fluctuations. However, we still believe that the majority of its cash flows will come from sales through longer-term contracts, so fluctuations in spot market prices shouldn't generate substantial volatility to its credit metrics. Delays in the expansion of hydro capacity in Colombia. Empresas Publicas de Medellin E.S.P.'s (EEPPMM) construction of the 2,400 megawatt (MW) capacity Ituango hydro plant has been delayed for several years, and the most recent expectation is that it won't start operating before December 2021. Given its relevant size for Colombia's electric system, further construction delays...

Full Report