OREANDA-NEWS. Fitch Ratings believes Inkia Energy Limited's (Inkia) acquisition of Energuate, a holding company that owns a distribution business in Guatemala, is consistent with the company's growth strategy and is neutral to its credit profile. Through this acquisition, Inkia will add geographic and asset diversification to its portfolio. Further, the addition of electric distribution business to the portfolio should add more stability and predictability to Inkia's overall cashflow generation given the lower business risks generally found in distribution assets.

IC Power Ltd (Inkia's parent), recently announced plans to acquire a 100% equity stake in Energuate. Energuate will be acquired through a subsidiary of Inkia for approximately $299.5 million plus the assumption of approximately $289 million in debt, roughly or approximately a 5.8x enterprise value (EV) to adjusted 2015 EBITDA. The final purchase price is subject to purchase price adjustments for working capital, outstanding indebtedness and transaction related expenses.

Inkia's cash disbursement will be partially financed with the company's cash on hand and additional $120 million in debt. The transaction is expected to close by the end of the month. During 2014, Energuate generated approximately USD100 million in EBITDA, Fitch expects Energuate's EBITDA annual generation will be $100 to $130 million over the next three years.

Initially, the transaction will likely result in slightly lower debt leverage on a consolidated (proforma) basis at the close of the transaction. Over the medium term, Inkia's gross leverage, which was expected to fall between 3.5x - 4.0x once the Cerro del Aguila and Samay projects started operations in 2016, is now expected to be in the upper end of that range for the 2016 - 2018 period. The higher projected level of leverage during that period does not provide the company with significant room at its current rating level for another meaningful acquisition or equity distribution that would cause a significant increase in indebtedness. As the company enters into more diversified geographical areas and businesses, this threshold may change depending on the stability and predictability of the company's cashflow generation, i.e. the new projects come on line and the distribution assets are successfully incorporated into the portfolio.

During 2014, Inkia sold its participation in EDEGEL, the largest generation company in Peru. The company's debt covenants included that the cash proceeds may be used to repay senior debt or purchase assets. Fitch expects that during 2016 - 2018, Inkia will generate approximately 20% of its consolidated EBITDA from Energuate. This asset will start generating cash to Inkia after acquisition.

Energuarte is the largest distribution company in Guatemala covering 19 out of the 22 departments in the country and providing service to a population of approximately 10 million habitants. The company has 33,000 km distribution lines covering 94% of the country. During 2014, the company sold 2,160 GWh, providing 35% of the total energy consumed in Guatemala and 60% of the total power distribution clients. Energuarte business includes two smaller companies: Comercializadora Mayorista de Electricidad, S.A., an electricity trading company that provides services to large customers and Redes Electricas de Centroamerica, S.A., a transmission company that owns and operates 31 km of transmission lines and eight sub-stations. The company has a favorable contractual situation as it benefits from a concession to provide service in the rural area expiring in 2048.