|By Business Wire||
|June 18, 2014 02:27 PM EDT||
Fitch Ratings has affirmed Instituto Costarricense de Electricidad y Subsidiarias' (Grupo ICE) foreign- and local-currency Issuer Default Ratings (IDRs) at 'BB+' as well as its national scale ratings at 'AAA(cri)' and 'AAA(slv)'. The Rating Outlook is Stable.
KEY RATING DRIVERS
Grupo ICE's ratings are supported by the company's linkage to the Sovereign rating of Costa Rica (FC and LC IDRs rated 'BB+'/Stable Outlook by Fitch) which stems from the government ownership and government's implicit and explicit support. The company holds strategic importance for the government given the growing demand of electricity in the country and government's plans to increase renewable generation and to reduce exposure to fluctuations in fossil fuel prices. The ratings also reflect company's diversified portfolio of assets, adequate financial profile, aggressive capital expenditure program oriented to increase renewable generation capacity and maintaining a strong market share position in the telecommunications business.
DIVERSIFIED ASSET PORTFOLIO
Grupo ICE is a vertically integrated monopoly in the electricity industry and the incumbent player in the Telecom industry in Costa Rica. The ratings reflect the company's low business risk resulting from its business diversification and positive characteristics as a utility service provider.
As of year-end 2013, Grupo ICE had an installed electric generation capacity of 2,067 megawatts (MW) (national capacity of 2,731MW) and is the exclusive owner of the national transmission grid. The national electric industry includes private generation, municipal distribution and electric cooperatives that can generate energy in coordination with Grupo ICE or sell their energy to Grupo ICE. The company is expected to remain a leader in the telecommunications industry in the country, notwithstanding recent changes that opened the industry to competition. Although this will increase competition, it is also expected to enhance regulatory transparency. ICE's market share in terms of subscribers was near to 100% in fixed telephony and 70% in mobile at 2013-end.
In YE 2013, the company generated revenues and EBITDAR of USD 2,647 million and 936 million, respectively (USD 2,375 million and USD844 million in 2012). The company's electricity segment represented approximately 59% of revenues, with the telecommunications division contributing the rest. Fitch expects ICE's electricity business to increase its contribution given the current and future expansion projects, as well as relatively stable results in the telecommunications segment.
LEVERAGE DRIVEN BY CAPEX
Grupo ICE's ratings reflect the company's leverage, satisfactory interest coverage and exposure to foreign exchange risk. In the last few years, company leverage weakened as result of the ongoing large capital expenditure program, which is mainly financed with debt. Fitch expects the company will be able to reduce leverage as new generation projects, such as PH Reventazon, become online in the next few years, absent of significant changes in tariffs.
As December 2013, Grupo ICE reported consolidated debt of USD3.7 billion, of which USD423 million was short-term and near 85% was denominated in USD, which exposes the company to fluctuations in the exchange rate. The company benefit from a very favorable debt schedule, approximately 25% of its debt matures in the next five years. Financial leverage ratio, as measured by total adjusted debt-to-EBITDAR, totaled 5.6x.
In the short-term, credit metrics could deteriorate as result of adverse weather conditions and a lag in regulated tariffs to incorporate the costs of thermal generation and net electricity imports. A further devaluation of the local currency may also impact leverage ratios. These factors could reduce company's ability to meet some financial covenants and financial flexibility. A breach of covenants could limit temporarily issuer's ability to take new debt.
AGGRESSIVE CAPITAL EXPENDITURE PLAN
Grupo ICE's capital investment plan is considered aggressive and could weaken the company's financial profile, absent increased cash flow generation and adequate tariff adjustments. The company plans to invest approximately USD3.7 billion over the next five years in order to supply electricity to meet demand and maintain its leadership position in telecommunications in Costa Rica.
Going forward, leverage could increase consistently to over 6.0x if the company finances its capital investment plan heavily with debt and the revenues associated with these investments are delayed beyond the expected ramp-up timeframe or don't received opportunely the tariff adjustments. Grupo ICE expects to finance its investments with a combination of internal cash flow, debt, Build Operate and Transfer (BOT) transactions, project finance vehicles and operating leases.
HIGH EXPOSURE TO REGULATORY AND POLITICAL INTERFERENCE
Grupo ICE is highly exposed to regulatory interference risk given the lack of clear and transparent electricity tariff schedules. The company annually proposes to the regulator electricity tariffs for end-users; in previous years, the regulatory and political interference affected the tariff adjustment process.
Positive for the company's business and financial profile is the approved mechanism to adjust tariffs to reflect fuel cost variations on a quarterly basis, starting in 2013. This change has a positive effect on Grupo ICE's working capital and reduces its exposure to hydrology risk. Before 2012, the regulator approved tariffs that do not fully recognized the company's moderate exposure to fuel prices borne by its thermoelectric generation business (8% - 10% of annual generation on average). Currently the issuer is proposing to modify the existing tariff scheme to incorporate the costs of net electricity imports given ongoing adverse weather conditions.
The recent Telecom regulatory framework considers changes in tariffs and competition rules. Fitch expects that new regulations could enhance regulatory transparency. Nevertheless, telecommunications tariffs have been unchanged since 2006.
Despite the regulatory risk, Grupo ICE has managed to maintain a relative stable cash flow generation. Also, the company is exposed to political interference given that the government appoints and removes ICE's directors and executives, sets and approves the company's tariffs, and regulates its budget.
--Grupo ICE's ratings could be negatively affected by any combination of the following factors: sovereign downgrades; weakening of legal, operational and/or strategic ties with the government; or regulatory intervention that negatively affects the company's financial performance.
--Grupo ICE's ratings could be positively affected by an upgrade of Costa Rica's sovereign rating, or if the company is materially isolated from government interference.
Fitch has affirmed the following ratings for Grupo ICE:
--Long-term FC IDR at 'BB+'; Stable Outlook;
--Long-term LC IDR at 'BB+'; Stable Outlook;
--Senior unsecured debt at 'BB+';
--Long-term national scale (Costa Rica) at 'AAA(cri)'; Stable Outlook;
--Senior unsecured domestic long-term debt (Costa Rica) at 'AAA(cri)';
--Short-term debt at 'F1+(cri)';
--Long-term national scale (El Salvador) at 'AAA(slv)'; Stable Outlook
--Senior unsecured domestic long-term debt (El Salvador) at 'AAA(slv)'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May. 28, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Who are you? How do you introduce yourself? Do you use a name, or do you greet a friend by the last four digits of his social security number? Assuming you don’t, why are we content to associate our identity with 10 random digits assigned by our phone company? Identity is an issue that affects everyone, but as individuals we don’t spend a lot of time thinking about it. In his session at @ThingsExpo, Ben Klang, Founder & President of Mojo Lingo, discussed the impact of technology on identity. Sho...
Feb. 20, 2017 08:30 AM EST Reads: 5,105
@DevOpsSummit has been named the ‘Top DevOps Influencer' by iTrend. iTrend processes millions of conversations, tweets, interactions, news articles, press releases, blog posts - and extract meaning form them and analyzes mobile and desktop software platforms used to communicate, various metadata (such as geo location), and automation tools. In overall placement, @DevOpsSummit ranked as the number one ‘DevOps Influencer' followed by @CloudExpo at third, and @MicroservicesE at 24th.
Feb. 20, 2017 08:30 AM EST Reads: 939
SYS-CON Events announced today that Enzu will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY, and the 21st International Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Enzu’s mission is to be the leading provider of enterprise cloud solutions worldwide. Enzu enables online businesses to use its IT infrastructure to their competitive ad...
Feb. 20, 2017 08:30 AM EST Reads: 2,190
There are 66 million network cameras capturing terabytes of data. How did factories in Japan improve physical security at the facilities and improve employee productivity? Edge Computing reduces possible kilobytes of data collected per second to only a few kilobytes of data transmitted to the public cloud every day. Data is aggregated and analyzed close to sensors so only intelligent results need to be transmitted to the cloud. Non-essential data is recycled to optimize storage.
Feb. 20, 2017 08:15 AM EST Reads: 1,135
In his keynote at @ThingsExpo, Chris Matthieu, Director of IoT Engineering at Citrix and co-founder and CTO of Octoblu, focused on building an IoT platform and company. He provided a behind-the-scenes look at Octoblu’s platform, business, and pivots along the way (including the Citrix acquisition of Octoblu).
Feb. 20, 2017 07:45 AM EST
WebRTC is the future of browser-to-browser communications, and continues to make inroads into the traditional, difficult, plug-in web communications world. The 6th WebRTC Summit continues our tradition of delivering the latest and greatest presentations within the world of WebRTC. Topics include voice calling, video chat, P2P file sharing, and use cases that have already leveraged the power and convenience of WebRTC.
Feb. 20, 2017 07:30 AM EST Reads: 135
Information technology (IT) advances are transforming the way we innovate in business, thereby disrupting the old guard and their predictable status-quo. It’s creating global market turbulence. Industries are converging, and new opportunities and threats are emerging, like never before. So, how are savvy chief information officers (CIOs) leading this transition? Back in 2015, the IBM Institute for Business Value conducted a market study that included the findings from over 1,800 CIO interviews ...
Feb. 20, 2017 07:30 AM EST Reads: 1,384
Stratoscale, the software company developing the next generation data center operating system, exhibited at SYS-CON's 18th International Cloud Expo®, which took place at the Javits Center in New York City, NY, in June 2016.Stratoscale is revolutionizing the data center with a zero-to-cloud-in-minutes solution. With Stratoscale’s hardware-agnostic, Software Defined Data Center (SDDC) solution to store everything, run anything and scale everywhere, IT is empowered to take control of their data ce...
Feb. 20, 2017 07:15 AM EST Reads: 664
In his session at @DevOpsSummit at 19th Cloud Expo, Robert Doyle, lead architect at eCube Systems, will examine the issues and need for an agile infrastructure and show the advantages of capturing developer knowledge in an exportable file for migration into production. He will introduce the use of NXTmonitor, a next-generation DevOps tool that captures application environments, dependencies and start/stop procedures in a portable configuration file with an easy-to-use GUI. In addition to captur...
Feb. 20, 2017 07:15 AM EST Reads: 3,376
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life settle...
Feb. 20, 2017 07:15 AM EST Reads: 108
SYS-CON Events announced today that SD Times | BZ Media has been named “Media Sponsor” of SYS-CON's 20th International Cloud Expo, which will take place on June 6–8, 2017, at the Javits Center in New York City, NY. BZ Media LLC is a high-tech media company that produces technical conferences and expositions, and publishes a magazine, newsletters and websites in the software development, SharePoint, mobile development and commercial UAV markets.
Feb. 20, 2017 07:00 AM EST Reads: 1,456
DevOps is being widely accepted (if not fully adopted) as essential in enterprise IT. But as Enterprise DevOps gains maturity, expands scope, and increases velocity, the need for data-driven decisions across teams becomes more acute. DevOps teams in any modern business must wrangle the ‘digital exhaust’ from the delivery toolchain, "pervasive" and "cognitive" computing, APIs and services, mobile devices and applications, the Internet of Things, and now even blockchain.
Feb. 20, 2017 06:45 AM EST Reads: 263
In the first article of this three-part series on hybrid cloud security, we discussed the Shared Responsibility Model and examined how the most common attack strategies persist, are amplified, or are mitigated as assets move from data centers to the cloud. Today, we’ll look at some of the unique security challenges that are introduced by public cloud environments. While cloud computing delivers many operational, cost-saving and security benefits, it takes place in a public, shared and on-demand ...
Feb. 20, 2017 06:30 AM EST Reads: 1,086
Both SaaS vendors and SaaS buyers are going “all-in” to hyperscale IaaS platforms such as AWS, which is disrupting the SaaS value proposition. Why should the enterprise SaaS consumer pay for the SaaS service if their data is resident in adjacent AWS S3 buckets? If both SaaS sellers and buyers are using the same cloud tools, automation and pay-per-transaction model offered by IaaS platforms, then why not host the “shrink-wrapped” software in the customers’ cloud? Further, serverless computing, cl...
Feb. 20, 2017 06:00 AM EST Reads: 1,629
The Software Defined Data Center (SDDC), which enables organizations to seamlessly run in a hybrid cloud model (public + private cloud), is here to stay. IDC estimates that the software-defined networking market will be valued at $3.7 billion by 2016. Security is a key component and benefit of the SDDC, and offers an opportunity to build security 'from the ground up' and weave it into the environment from day one. In his session at 16th Cloud Expo, Reuven Harrison, CTO and Co-Founder of Tufin, ...
Feb. 20, 2017 05:30 AM EST Reads: 4,580