IDB Invest promotes the first liquidity solution to support the financial sustainability of Chile’s electricity sector
- It can be replicated in other countries in Latin America and the Caribbean, supporting similar liquidity challenges for companies in this sector.
IDB Invest has structured a $890 million package of financial solutions to provide liquidity to 13 electricity generators in Chile that are subject to the Law 21.185 on tariff stability approved in November 2019. The package is made up of two deals, one with Goldman Sachs, and another with BNP Paribas and Banco Santander, to serve two different groups of generators.
The liquidity solution consists in that IDB Invest will acquire the credit rights (accounts receivables) that the National Energy Commission has recognized from the generators, as compensation for the freezing of tariffs in pesos, after the implementation of Law 21.185. To monetize these credit rights in the short term, IDB Invest has structured two operations that will allow it to mobilize resources through international investment banking partners. It is the first time that a solution of this type has been implemented in the region.
In the first deal, Goldman Sachs has structured a special purpose vehicle to issue bonds, in order to finance the purchase of the credit rights brought at present value and provide liquidity to the electricity generators. The first bond amount was for $394 million, of which IDB Invest subscribed $50 million. Subsequent issues of up to $357 million will also be underwritten by IDB Invest for up to $150 million. The seven generators that will benefit from this monetization are Enel Generación Chile, Almeyda Solar/EGP Chile, Engie Energía Chile, AES Gener, Guacolda Energía, Eólica Monte Redondo and Colbún.
In the second deal, IDB Invest will acquire the credit rights of six generating companies valued at $184 million, which, similar to the previous scheme, will be brought at present value to generate monetization. IDB Invest will retain a 33% tranche, while the remaining amount is financed in equal parts by BNP Paribas and Banco Santander. The beneficiaries of this transaction will be six generators: Aela Generación, Cerro Dominador CSP, Chungungo, Empresa Eléctrica Carén, GM Holdings and Santiago Solar.
Law 21.185 created a transitory mechanism that froze electricity prices for homes and small businesses –called "regulated customers"– that would have faced an increase of at least 20 percent in their bills for this service without a regulatory change.
For this purpose, the law established that the rate charged by electricity distributors to regulated customers be set in Chilean pesos at the level established on May 2019, effective until the end of 2020. In a context of devaluation of the local currency, this reduced the income of the electricity generators, whose costs depend on inflation in dollars.
As compensation, the amounts owed to generators will be published in the Tariff Decrees, in the form of assignable credit rights, which will accumulate until July 2023 and must be repaid by the distributors by the end of 2027. The IDB Invest solution will allow to provide these future flows in advance and provide greater financial stability to generators and, thus, greater sustainability to the energy sector as a whole.
“The execution of this innovative financial solution reaffirms our commitment to the Chilean electricity sector and shows that IDB Invest is a strategic partner to support its clients in their great challenges. Providing financial stability to these actors in the sector guarantees their operations and their continuous promotion of investment in renewable energies, which mitigate the impacts of climate change. With the impact that the pandemic is having in the region, this solution can be replicated in other countries to support the stability of the energy sector in the region,” said James Scriven, CEO of IDB Invest.
For his part, the Chilean Minister of Energy and Mining, Juan Carlos Jobet, commented that “for several months we worked in a coordinated manner with IDB Invest, clarifying regulatory doubts to facilitate the structuring of financing. That is why I appreciate the interest that this initiative has raised, which supports the financial sustainability of the electricity sector and demonstrates the confidence that exists in the Chilean electricity market. Through these financial instruments, the generating companies will have greater liquidity to continue advancing with new investments in the country.”
About IDB Invest
IDB Invest, a member of the IDB Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social and environmental development in the region. With a portfolio of $13.1 billion in asset management and 385 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.