Fitch Affirms Endesa-Chile's IDRs at 'BBB+/AA(cl)'; Outlook Stable
BUENOS AIRES, Argentina -- December 19, 2012
Fitch Ratings has affirmed the foreign and local currency Issuer Default
Ratings (IDRs) of Empresa Nacional de Electricidad S.A.'s (Endesa Chile) at
'BBB+' and its long-term national scale rating at 'AA (cl)'. In addition,
Fitch has affirmed Endesa-Chile's short-term national scale rating at
'F1+/AA(cl)'and its national Equity Rating at 'Primera Clase Nivel 1 (cl)'.
These rating actions affect approximately USD917 million of outstanding Yankee
bonds and USD562 million of domestic bonds. The Rating Outlook is Stable.
Endesa Chile's ratings reflect a moderate risk business profile underpinned by
the company's conservative commercial strategy and geographical
diversification, operations in constructive regulatory environments, and
strong financial metrics. Endesa Chile's ratings are aligned to those of
Enersis S.A. due to the strong legal, operation and strategic ties. The Stable
Outlook is driven by Endesa Chile's adequate liquidity profile and credit
Credit risks associated with the company include possible pressures from the
shareholder Enel S.p.a. ('A-' IDR by Fitch) to increase dividends, possible
environmental and/or political issues which could result in cost overruns or
modifications of projects under construction, regulatory uncertainties in
Argentina (which only represents 3.5% of EBITDA), although these risks appear
Key Rating Drivers
A change in Endesa Chile's commercial policy that results in an imbalanced
long-term contractual position, and/or a material and sustained deterioration
of credit metrics (reflected in a Debt to EBITDA ratio greater than 3x and
EBITDA to interest coverage below 4x) could result in a negative rating
action. A material improvement in credit metrics that could be sustained over
time, reduction in debt levels and in pressure from shareholders to distribute
dividends could result in a positive rating action.
Conservative Commercial Policy
Endesa Chile's conservative commercial policy is a key strength to reduce the
company's exposure to hydrology risk as hydroelectric capacity represents 58%
of its generation matrix as of September 2012. The company's commercial
policies limit the contracted volume to the Endesa Chile's efficient
generation capacity under different scenarios. Nevertheless, in a situation of
draught, as it occurred in Chile during 2010-2012, the company could need to
buy energy in the spot market to fulfill its contracts. Geographic
diversification through Latin America provides a natural hedge to different
regulations and weather conditions.
The company has a strong competitive position in Chile which represents 41% of
LTM consolidated EBITDA as of September 2012. In Chile, the company's exposure
to commodity fuel price risk is mitigated by contracts that include price
indexation mechanisms that recognize a significant portion of fuel price
variations. Also, the company has access to competitive natural gas from its
20% ownership in Quintero liquefied natural gas (LNG) regasification facility,
which provides natural gas to Endesa Chile. Access to lower cost natural gas,
favorably positions the company against its competitors that use higher cost
fuels. In 2010-2012, an unusual prolonged period of draught in Chile, the
company's power plants San Isidro were able to operate continuously with such
Moderate Medium Term Expansion Program
Bocamina II coal plant began its commercial operations in Chile in October
2012, adding 350MW of thermal power generation. The over one year delay in its
start-up during a dry season, has been partially mitigated by the company's
conservative commercial policy and the constant operation of its plants San
Isidro I and II with competitive natural gas from LNG Quintero.
Endesa Chile's main project under construction is Quimbo, a 400 MW
hydroelectric plant in Colombia. With a total investement of USD837 million,
Quimbo is expected to begin operations in December 2014. Endesa Chile
continues the studies to construct Hydroaysen hidro power plant which would
add 2,750MW of capacity and has several other projects under study for
approximately 8,100MW in Chile, Colombia and Peru, including Hydroaysen.
Strong Credit Metrics
Fitch expects Endesa-Chile to maintain a relative stable EBITDA of
approximately USD 2 billion per annum in 2012 - 2014, which is expected to
increase in 2015 after Quimbo begins to operate. Annual capex is expected to
decrease to a level of USD400 to USD550 million per annum. Fitch expects
future capacity additions not to require additional indebtedness as free cash
flow is expected to remain positive.
Endesa Chile's credit profile is supported by ample consolidated liquidity
with USD312 million of cash as of September 2012 and access to a USD514
million of unsecured committed revolving credit lines. At that date, total
debt was USD3.9 billion. Debt maturities are manageable of USD411 million due
in 2012, USD566 million due in 2013 and USD334 million due in 2014. Fitch
expects the company to refinance a portion of its debt maturities, while
interest coverage, as measured by EBITDA-to-interest remains above 5.0 times
(x) and leverage as measures by net debt-to-EBITDA to remain below 2.0x,
between 2012 - 2016.
For the LTM period ended September 2012, the company's EBITDA was USD1.9
billion, slightly below Fitch's expectations due to higher transportation
costs in Chile and lower average energy sales price. Nevertheless, the
company's credit metrics remained strong, and were reflected in an
EBITDA-to-interest of 6.1x and net debt-to-EBITDA of 1.8x.
Endesa Chile has a total installed capacity of 13.837MW distributed in Chile,
Colombia, Peru and Argentina. In addition, it has 987MW in Brazil. The company
is the largest electricity generation company in Chile, owns and operates
approximately 32% of the country's total generating capacity, and operates 38%
of the Central Interconnected System (SIC) and 12% in the Northern
Interconnected System (SING), installed capacity, respectively. Endesa-Chile
also has ownership interests in electric generation in Argentina, Colombia,
Peru and Brazil. The company is 59.9% owned by Enersis, a diversified utility
holding company based in Santiago, Chile (Fitch IDR of 'BBB+'). In turn,
Enersis is 60.6% owned by Endesa-Spain (Fitch IDR of 'A-'), Spain's largest
electrical utility. Endesa-Spain's ratings are linked to and capped by those
of its majority shareholder (92%), Enel SpA, based on strong legal,
operational and strategic links.
Fitch has affirmed Endesa-Chile's ratings as follows:
--Senior unsecured notes USD400 million due 2013 at 'BBB+';
--Senior unsecured notes USD200 million due 2015 at 'BBB+';
--Senior unsecured notes USD230 million due 2027 at 'BBB+';
--Senior unsecured USD220 million notes due 2037 at 'BBB+';
--Senior unsecured USD40 million notes due 2097 at 'BBB+';
--Senior unsecured CLF1.5 million notes due 2022 at 'AA(cl)';
--Senior unsecured CLF4 million notes due 2028 at 'AA(cl)';
--Senior unsecured CLF4 million notes due 2027 at 'AA(cl)';
--Senior unsecured CLF10 million notes due 2029 at 'AA(cl)';
--Commercial paper USD35 million at 'F1+/AA(cl)';
--Commercial paper USD45 million at 'F1+/AA(cl)';
--Commercial paper USD45 million at 'F1+/AA(cl)';
--Commercial paper USD75 million at 'F1+/AA(cl)';
--Debt Program N 317 for CLF4 million at 'AA(cl);
--Debt Program N 318 for CLF4 million at 'AA(cl);
--Debt Program N 522 for CLF10 million at 'AA(cl).
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
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