Fitch Affirms ISAGEN's 'BB+/BBB-' Foreign & Local Currency IDRs

Business Wire,  July 14, 2008  

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CHICAGO -- Fitch Ratings affirms ISAGEN S.A. E.S.P.'s (ISAGEN) foreign and local currency Issuer Default Rating (IDR) at 'BB+' and 'BBB-', respectively. The Rating Outlook is Stable.

ISAGEN's ratings reflect the company's strong market share position, its solid commercial strategy, and its partially diversified portfolio of electricity generation assets located throughout Colombia. The ratings also reflect the company's exposure to regulatory risk and the competitiveness of the Colombian electricity industry as well as the explicit and implicit government support.

ISAGEN's credit metrics are currently strong for the rating category. Going forward, the company is expected to increase leverage to finance its expansion program. Fitch expects the company to maintain its leverage ratio in line with the assigned rating category. Should the company significantly increase leverage by issuing unsecured debt without further support from the Colombian government, it would pressure credit quality, which in turn could result in a downward rating action.

The company has recently implemented an aggressive growth strategy that will require significant funding to be financed. ISAGEN's largest project is an 800 megawatt (MW) dam-based hydroelectric generation plant in Colombia, which will require an investment of approximately US$1.1 billion to US$1.4 billion. ISAGEN also intends to expand internationally and is actively studying growth opportunities in Central American and the Andean region. As part of this growth plan, the company has signed a memorandum of understanding to build a coal-fired generation plant in Panama. The balance of the company's growth strategy thus far focuses on increasing generation output from the company's existing assets.

ISAGEN's competitive position within the country is bolstered by its significant market share position and its diversified portfolio of generation assets. ISAGEN is the third largest electricity generation company based on installed capacity, with approximately 16% of the market. This enables ISAGEN to growth both inside Colombia and abroad. Colombia's electricity sector, including ISAGEN, is exposed to droughts. This risk affects margins and is factored in to the company's ratings.

The company's commercial strategy is solid and supportive of its credit profile. Although the bulk of the company's revenue comes from selling electric energy, ISAGEN's commercial strategy is to diversify its revenue by selling gas and providing energy solutions to large customers. Its revenues are considered to be predictable to some extent as the company strategy is to contract a significant portion of its electricity production in the short- to medium-term. Currently, the company has contracted with market participants and large customers approximately 80% of its electricity generation for the next three years.

Although the regulatory framework is believed to be supportive of sector participants, recently implemented changes are yet to be proven. Capacity reliability charges replaced capacity payments at the end of 2006. Reliability charges and capacity payments are in essence similar. They differ in that the former is driven by the new power plants to be constructed and the latter was based on comparable efficient thermoelectric generation plants outside the country. ISAGEN received approximately US$86 million on reliability charges revenue during 2007.

ISAGEN S.A. E.S.P. is a state-controlled electricity generation company and an energy solution provider in Colombia. ISAGEN, with 2,132 MW of installed capacity, is the third largest electricity generator in Colombia and generated on average 10,027 GWh (gigawatt hours) during 2007. The government sold 19.22% of the company's total equity during 2007 through an initial public offering in Colombia. ISAGEN also sells excess gas to third parties and provides energy solution to large customers.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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