Abengoa financial woes ripple across Latin America

OREANDA-NEWS. December 01, 2015. The financial meltdown of Spain Abengoa is rippling across Latin America, where the engineering and construction firm has an extensive portfolio of energy assets and projects.

The first clear sign of a regional impact emerged late last week, when Abengoa M?xico missed coupon payments on its outstanding commercial debt. Bondholders had been due to receive 1.16mn pesos (\\$70mn), according to a 26 November Abengoa Mexico filing to the Mexican stock exchange. As a result of the default, US credit rating agency Moody's downgraded Abengoa Mexico's issuer rating to Caa2/Caa2 from B3/B1.

Then today union leaders confirmed that Abengoa suspended the construction of a major transmission line in Brazil, a move that threatens to push back the injection of electricity supply from the 11.2GW Belo Monte hydroelectric project. More than 1,500 workers have been fired because of the project suspension.

Brazilian electricity regulator Aneel may be forced to revoke Abengoa?s R1.3bn contract for the 1,816km (1,128mi) line. The agency says it has been notified of the suspension of construction of the line and is evaluating next steps. The concession can be suspended if Aneel determines the company is not meeting its contract commitments.

Abengoa won the build-and-operate contract for the transmission project in December 2012. The company blamed construction delays on a failure to secure environmental licensing for the project.

Abengoa is one of the largest privately owned transmission companies in Brazil, with over 3,400km of transmission lines currently under construction.

In Chile, Abengoa has multiple alternative renewable projects, including the 210MW Cerro Dominador solar project in the Atacama desert. Atacama 1 includes a 100MW photovoltaic plant and the first solar thermal plant in Latin America, with 110MW of installed capacity and 17.5 hours of thermal storage.

To make matters more complicated, the solar project secured \\$205mn in bridge financing from BTG Pactual, a Brazilian investment bank whose imprisoned chief executive resigned after he was accused of obstruction of justice in a major corruption scandal rooted in state-controlled Petrobras.

Abengoa has not commented on the status of its Chilean projects.

Andr?s Romero, the executive secretary of Chile national energy commission (CNE), told reporters on 27 November that the government is monitoring the Abengoa situation. If the company should be forced to drop out of a generation project, other investors would snap it up because of existing power purchase agreements, he said.

Romero asserted that the parent company?s financial woes are not necessarily affecting local subsidiaries, a view challenged by financial sector executives. "Abengoa?s parent-related expertise was a key factor in their project pitches. You can?t now disregard the minuses," one executive told Argus.

In Jamaica, utility JPSCo is weighing whether to select another contractor to build a 190MW natural gas-fired power plant if Abengoa is unable to deliver on the \\$300mn contract, JPSCo's chief executive Kelly Tomblin says.

Japan's Marubeni Caribbean subsidiary MCPH and Korea's East West Power subsidiary each have a 40pc stake in JPSCo. The Jamaican government owns 19pc and local individual and institutional investors the remaining 1pc.

In Spain, debt-laden Abengoa entered administration on 27 November, placing it under article 5 of Spanish bankruptcy law, which gives the firm four months to restructure debts.

Creditor banks were due to meet today to discuss the state of the company, and some smaller shareholders have launched a class action lawsuit against the firm over its accounting practices and the loss of share value.