Colbun Studying Acquisitions to Expand in Peru, Colombia

Colbun SA (COLBUN), Chile’s third-largest power producer by sales, is weighing opportunities to join its competitors and expand into Peru and Colombia, Chief Executive Officer Ignacio Cruz said.

Expansion may come through acquisitions or the development of new projects, Cruz said. Plans to move beyond Chile are at an early phase, he added.

Colbun stands alone among the country’s three largest power producers without an international presence. AES Gener SA (AESGENER), Chile’s second-largest power producer by sales, generated 48 percent of its annual revenue from operations in Argentina and Colombia in 2013.

“In the medium term we will look for alternatives to grow outside of Chile,” Cruz said today in an interview at Colbun’s headquarters in Santiago. “Our first studies show that those two countries are the most attractive.”

Empresa Nacional (ENDESA) de Electricidad SA, or Endesa, Chile’s largest power producer, also has plants in Argentina, Brazil, Colombia and Peru.

Colbun will seek to reduce debt and improve leverage ratios before expanding abroad, Cruz said. The company aims to refinance part of its $1.62 billion debt and extend maturities to lower its ratio of net debt to earnings before interest, tax, depreciation and amortization, or Ebitda, to below 3 times by the end of the year.

The ratio currently stands at 3.8 times, and reached a record 9.3 times at the end of second quarter of 2011, according to data compiled by Bloomberg.

Chile Drought

The recent start of operations at Colbun’s Angostura hydroelectric power plant and the Santa Maria thermoelectric plant in southern Chile will help the power producer increase cash flow and maintain its investment grade, Cruz said. Colbun is rated BBB-, the lowest investment grade, with a negative outlook by Standard & Poor’s and BBB by Fitch Ratings.

Chile has suffered through a drought over the last four years, reducing water levels at the country’s main reservoirs and increasing energy costs as power producers were forced to turn to more expensive fuels, such as diesel. There are signs that 2014 will see more rain.

“As a precaution, we have to continue working as if this were a fifth year of drought,” Cruz said.

Colbun is also exploring investments in renewable energy projects. The company is tendering a long-term contract, worth “several hundred million dollars,” to purchase electricity from a proposed solar power plant in Chile. The contract will allow the developers to secure cheaper funding. Colbun will hold an option to buy stakes once its complete.

Cruz said he is confident that the HidroAysen power project, five hydroelectric plants planned for southern Chile with the capacity to generate 2,750 megawatts, will eventually be built. Local environmental and political groups have opposed the project.

Colbun and Endesa own 49 percent and 51 percent respectively of HidroAysen, which has been under government review since 2008. A final vote from the government’s council of ministers is scheduled for June 10.

To contact the reporter on this story: Eduardo Thomson in Santiago at

To contact the editors responsible for this story: Brendan Walsh at Jim Efstathiou Jr., James Attwood

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