Edegel: Utilities

The Company

Edegel is the largest power generation company in Peru. It supplies the national grid and has a total installed capacity of 1470 MW, of which 922 MW is thermoelectric capacity. Edegel is controlled by the Spanish electricity company Endesa, which indirectly owns 83% of Edegel’s outstanding shares through Generandes Peru and Endesa Chile. Its Peruvian operation represents 12% of Endesa Chile’s total installed capacity and 16% of earnings before interest, taxes, depreciation and amortisation (EBITDA) in August 2013.

The company produced 7691 GWh in 2012, which represents 21% of the country’s national energy production. Its most important hydroelectric stations are Huinco (247 MW) and Matucana (129 MW) and its most important thermoelectric stations are Ventanilla (485 MW) and Santa Rosa (426 MW). In 2012, 46% of the company’s total production was generated by hydroelectric sources and 54% by thermoelectric sources. Additionally, Edegel has an 80%-owned subsidiary called Chinango, which has a total capacity of 194 MW.

The company’s facilities include seven power stations, of which five are hydroelectric stations established in the basins of the Santa Eulalia and Rimac rivers and two thermal plants operating in Cercado de Lima and Ventanilla. The combined-cycle thermoelectric power station of Ventanilla is one of the most efficient power stations in Peru. Through Chinango, the company operates the Yanango and Chimay hydroelectric power plants, both of which are located in Junin.

The electrical system has two classifications: regulated clients, which includes residential and other small clients with low energy consumption, and non-regulated clients, consisting of large consumers such as mining, industrial and commercial clients. Total net operating revenues increased 10% during the fiscal year 2012, from PEN1.2bn ($448.7m) to PEN1.3bn ($528m) due to new contracts with regulated clients such as electric power distributors Hidrandina, Electrosur and Electrocentro. In 2012, 65% of Edegel’s physical sales came from regulated clients, 30% from free clients and 5% from the spot market. In 2011 these proportions were 64%, 27% and 9%, respectively.

In the local bond market, Edegel is one of the most important issuers with an outstanding total of $111m in domestic- and foreign-currency-denominated corporate bonds as of June 2013. Edegel’s local credit rating (AAA) is based on its ample capitalisation, power generation ability at lower marginal costs and an adequate diversification in energy sources. The company is rated Baa2, BBB and BBB+ by Moody’s, Standard & Poor’s and Fitch Ratings, respectively. Local agencies confirm that Edegel also enjoys strong support from its parent company, Endesa.

Edegel reported a strong leverage and interest coverage ratio, and as of the first quarter of 2013, its EBITDA-to-interest expenses ratio stood at 16.2x and its financial debt-to-EBITDA was 1.1x during the past 12 months. The company has a strategy of maintaining an optimal capitalisation structure with a financial debt-to-EBITDA ratio lower than 3.0x, and the firm complies with all its debt covenants (with equity to debt higher than two-thirds, among others).

Development Strategy

Edegel intends to maintain its status as the largest electric power generation company in Peru, and is continuously diversifying its client portfolio and signing new energy contracts with new customers or extending the contracts it already has. Edegel has contracts to supply energy and capacity until 2026 with distribution companies including Edelnor, Luz del Sur and Edecañete, and companies such as Minera Chinalco and Casapalca.

The company is planning to expand its installed capacity through a new hydroelectric power plant in Curibamba with capacity of 195 MW to enhance efficiency. Curibamba is located in Junin, the central region of Peru, and uses streams coming from the Comas and Uchubamba rivers. We estimate that Edegel will invest between $500m and $600m from 2013 to 2017. A feasibility study regarding environmental impact has already been conducted, and the project has been approved.

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