Latin American integrated power company Enel Americas S.A. (BBB/Stable/--) has announced a capital increase of up to $3.5 billion from shareholders. Italian power giant Enel SpA (BBB+/Stable/A-2) currently owns 51.8% of Enel Americas, and we don't expect it will lose its majority shareholding following the capital increase.
In an article published today, "Enel Americas' Planned $3.5 billion Capital Increase Will Also Be Positive For Enel SpA," S&P Global Ratings says the planned transaction has no effect on its ratings or outlooks on either company.
The capitalization will be discussed in an extraordinary general meeting of Enel Americas' shareholders on April 30, 2019, and if approved, could be completed as early as the end of June. We understand that Enel Americas will use the proceeds to repay a $2.65 billion short-term intercompany loan from Enel Finance International, which it used to acquire the Brazilian distributor, Eletropaulo Metropolitana Eletricidade de Sao Paulo S.A. and finance Eletropaulo's wide pension deficit and other contingencies at the Brazilian subsidiaries.
Once completed, the transaction is likely to have an overall positive impact on Enel SpA's and Enel Americas' credit metrics. This is because Enel Americas is fully consolidated into Enel's accounts, and the planned capital increase will represent an equity injection from third parties. In addition, we expect lower leverage among the acquired Brazilian assets, potentially allowing for higher dividend distributions to Enel starting in the third quarter of 2019. We think this will enhance Enel's credit profile because most of the group's debt is located at Enel's level, but that it will remain in line with our current assessment of creditworthiness. Therefore, benefits from the capital increase won't be material enough to change our rating on Enel.
We consider the proposed transaction to be a favorable development for Enel Americas' credit quality because it should strengthen the company's short-term credit metrics, which deteriorated in fiscal 2018 following the acquisition and integration of Eletropaulo. However, we consider the capital increase to be in line with the company's commitment to maintain a healthy financial profile.
Given that we consider the capital increase to be in line with the parent's strategy and our updated forecasts for metrics to be aligned with historical levels, there's no impact on our current assessment of Enel Americas' credit quality. However, if the company deleverages further in the following years and continues to consolidate its asset base, an upgrade is possible.
The company announced the capital increase in conjunction with its 2018 results, which highlighted Enel Americas' continued robust operating performance, including a 14% rise in EBITDA over the prior comparable period.
