The General Prosecutor of Colombia has not yet concluded the expropriation of Triple A de Barranquilla (Triple A), which provides water and wastewater services in the city of Barranquilla and surrounding areas in the north of Colombia, from Canal de Isabel II. If the deadline expires, the seizure could automatically cease, according to a report published last week by Moody’s.
On the 4th October 2018, the General Prosecutor of Colombia announced, as a precautionary measure, the seizure of the shares that INASSA S.A., an intermediate holding company in the Canal de Isabel II (Canal, Baa1 Rating Under Review) group, holds in Triple A de Barranquilla (Triple A).
Moody’s believes that if the General Prosecutor does not bring the seizure of the shares in Triple A before the Columbian Administrative Court by 4th April 2019, “the seizure automatically ceases,” Corrado Trippa, Lead Analyst at Moody's, explains.
“To date the General Prosecutor has not taken this action. If it subsequently does happen, a lengthy court process will likely follow before the expropriation is finalized,” Trippa states.
Moody’s considers that if the seizure of shares is concluded, Canal would lose around 15% of consolidated revenues and 10% of EBITDA.
Even though the agency believes that this is manageable within the context of Canal’s overall financial profile, it warns that the loss of these shares would be an event of default under Canal´s EUR500 million senior unsecured bond, which would permit some or all of Canal’s bond holders to demand repayment of their bonds.
“This remains a significant risk for Canal, the impact of which is difficult to dimension as it would depend on the number of bond holders that would demand repayment (if any) and the amount of cash on hand and debt refinancing that Canal could source to meet such a payment obligation,” says Moody’s.
“Consequently, the ratings remain on review for downgrade,” Moody’s adds.
Moody estimates that the company currently holds around EUR216 million of cash and cash equivalents (ex-dividend). Canal also has access to a number of bilateral 364-day liquidity facilities for around EUR 106million in aggregate. Nevertheless, in a potential scenario whereby a substantial share of the outstanding bond will have to be repaid, the company will likely require access to additional sources of financing, the source, timing and conditions of which are currently unclear.