Chile, September 21, 2020 – Enel Americas S.A. (ENIA, Baa3 positive) announced its board of directors had green lit a process to merge the non-conventional renewable power generation business under Enel Green Power’s (EGP) non-Chilean Latin American assets into the company. The proposed merger would be done through an exchange of shares with its parent company, Enel S.P.A. (Baa2 positive). If concluded as so, it would be credit positive for ENIA because it would add new dividend streams to support holding company debt with no cash outflow by ENIA or additional debt beyond that of the merged assets themselves. If successful, closing would likely be in second quarter 2021.
Incorporation of EGP’s assets in Argentina (Ca negative), Brazil (Ba2 stable), Colombia (Baa2 stable), Peru (A3 stable), Costa Rica(B2 negative), Guatemala (Ba1 stable), and Panama (Baa1 stable) would add 2.9 gigawatts of solar, wind and hydro power plants already in operation, and another 2.2 gigawatts of installed capacity under execution, constituting a 45% increase over its current installed capacity of 11.3 gigawatts. It would also establish a platform for continued growth of its power generation business aligned to its overall strategy surrounding energy transition, among other strategic objectives. It adds scale, provides further operating and geographic diversification, with solar and wind added to its fuel resource base, and establishes presence in Central America.
The exact financial effects are yet uncertain because financial statements or a summary of the financial condition of the assets are not yet public. However, from a consolidated standpoint, we believe these effects are countered by the likely increase in indebtedness post transaction closing, given the capital requirements for development of these power plants and long-term payback, and the increased representation of cash flows generated in lower rated countries, particularly Brazil.
That being said, holding company debt will likely decrease to less than the 18% reported in June 2020, and additional dividends will add to the $333 million received in 2019, which led to a dividends/interest expense ratio for the holding company of 8.5x and dividends/debt of 34% that year. Additionally, the exchange of shares will increase Enel S.P.A.’s ownership share of the company to above the current 65%, which strengthens the strategic importance of ENIA to its majority shareholder.
Headquartered in Santiago, Chile, ENIA became the successor company of Enersis S.A. after the separation of the group’s Chilean and non-Chilean electricity generation, distribution and transmission assets. Enel Americas holds controlling interest stakes in several regulated utilities and power generation companies operating in Colombia, Peru, Brazil and Argentina. In 2019, the company generated $12.0 billion in Moody’s-adjusted revenue and $4.1 billion in Moody’s-adjusted EBITDA, with a consolidated net adjusted debt to EBITDA of 1.9x and a ratio of cash from operation pre working capital to adjusted debt of 29.6%.
Credit Outlook: 28 September 2020. Pg. 7
Moodys
Atlantic Investors Service 