A hydroelectric power station provides almost a fifth of Colombia’s electricity needs it finally came online after more than a decade of delays, bringing cheap power and will be warmly welcomed by bondholders.
(Read: Alerts from the Risk Unit on the Hidroituango operation).
The Hidroituango dam, 225 meters high, which retains about 20 million cubic meters of water in the Cauca River, in central Colombia, will generate 2,400 megawatts of electricity once fully operational. The first two generating units – out of a total of eight – began producing 600 megawatts on Wednesday.
In the last month, the startup has made the bonds of Empresas Públicas de Medellín (EPM) one of the the best performing securities among Colombian corporate bonds. But it was an incredible effort to get to this point in the midst of environmental concerns, a landslide and a massive flood that threatened to bring down its walls and forced the evacuation of 10,000 people.
The yields of the US$1,000 million in EPM bonds that mature in July 2029 showed a four basis point drop to 8.25% on Thursday, its lowest level in three months, according to Trace data. Bonds have returned 7.6% in the past month, compared with a 5.2% gain among emerging market stocks.
(See: Batteries: tips to avoid electrical accidents in the Christmas season).
The roots of the project date back to its first feasibility study, in 1983. Construction of the plant finally began in September 2011 despite objections from environmentalists who claimed it would ruin a pristine river system. But just as it was about to go into operation in April 2018, the landslide and flooding occurred. Although the concrete did not give way, the structure sustained nearly $1 billion in damage.
“It is very good news that EPM has been able to carry out a project of such magnitude and overcome the accident of 2018,” said Sandra Loyola, a fixed-income analyst at Credicorp Capital in Lima. “The project is extremely important not only for EPM because of the income it will generate over time, but also because of Hidroituango’s contribution to the electrical system.”
EPM foresees that the cost of the project is 17.6 billion pesos ($3.7 billion).
(Read: Current contracts would ensure self-sufficiency of oil and gas).
However, after so many delays, concerns about the continuation of the work persist, Loyola said. After the 2018 accident, lInvestors remained very attentive to risks, highlighted.
“Geological hazards need to be closely monitored,” Loyola said. That will be “another of the great challenges for EPM”.
Bloomberg
