Fixed interest rate
2. Exchange Rate Risk
Exchange rate risks fundamentally correspond to the following transactions:
- Debt contracted by the Group’s companies denominated in a different currency of which the flows are indexed.
- Payments to be made related to the acquisition of materials associated to projects and corporate insurance policy payments being made in a different currency of which the flows are indexed, among others.
- Revenues of the companies of the Group that are directly linked with the evolution of currencies not related to the companies’ flows.
- Flows from the subsidiaries abroad to the head offices in Chile, which are exposed to exchange rate variations.
With the objective of mitigating the exchange rate risk, Enel Américas’ hedging policy for exchange rates is based on cash flows and contemplates to maintain a balance between the flows indexed in dollars and the levels of assets and liabilities denominated in that currency. The objective is to minimize the exposition of the cash flows to variations in the exchange rates.
The instruments currently being used to comply with policy are currency swaps and exchange rate forwards. Likewise, the policy seeks to refinance debt in the functional currency of each company.
3. Commodities Risk
Enel Américas Group is exposed to commodities price variation risks, mainly through the following:
- Fuel purchases in the process of electricity energy generation.
- Energy purchase-sell operations that take place in the local markets.
With the purpose of reducing risk in situations of severe drought, the Group has designed a commercial policy defining the level of commitment of energy sales according to the generation capacity of power plants in a dry year, including risk mitigation clauses in some contracts with free clients. In the case of regulated clients, they are subjected to a long-term tender process, and indexing polynomials are determined enabling the reduction of commodities exposure.
Considering the operational conditions that face electricity generation, hydrology, and commodities price volatility in the international markets, the Company is permanently verifying the convenience of taking coverage positions to reduce the impacts of price variations in results.
On December 31, 2018, the company signed operations of purchase future energy contacts of 5.28 GWh. These purchases backed up an energy-selling contract in the wholesale market. On December 31, 2018, the company settled selling contracts for 10.92 GWh and 7.2 GWh of purchase future energy contacts.
On December 31, 2017, operations of purchase future energy contracts amounted to 5.4 GWh, for the period January - March 2017. These purchases backed up an energy purchase contract in the Colombian wholesale market. As of December 31, 2017, the company settled 24.23 GWh of energy-selling contracts and 77.45 GWh of purchase future energy contacts.
4. Liquidity Risk
The Group maintains a liquidity policy consistent with the contract of committed long-term credit facilities and temporary financial investments, in sufficient amounts to support the projected needs for a period of time related to the context and expectations of the debt and capital markets.
The aforementioned projected needs include net financial debt maturities, after financial derivatives. For further details regarding the features and conditions of financial debt and financial derivatives see Notes 21 and 23 of the Financial Statements of Enel Américas.
As of December 31, 2018, the liquidity of Enel Américas Group reached US$ 1,904 million in cash and cash equivalents, and US$ 1,269 in available non-committed long-term credit facilities. As of December 31, 2017, the liquidity of Enel Américas Group reached US$1,473 million in cash and cash equivalents, and US$225 million in available non-committed long-term credit facilities.
5. Credit Risk
Enel Américas performs a detailed monitoring of its credit risk.
Receivable Commercial Accounts
With regards to credit risk related to the receivable accounts coming from commercial activity, this risk is historically very limited given the short term client’s recovery time, so they do not individually accumulate a significant amount. This is applicable for both our electricity generation and distribution businesses.
In some countries, in our line of business of electricity generation, the company may face a supply disruption due to the lack of payment, and also in almost every contract it’s considered lack of payment as a cause for terminating the contracts.
For this end, the credit risk is constantly monitored and its measured in maximum amounts exposed such risk.
In the case of our electricity distribution companies, the supply disruption in all cases is our company’s decision facing our client’s lack of payment. This is implemented according to the existing regulation in each country, which facilitates the evaluation process and credit risk control, which is also limited.
Cash surplus investments are made by top of the line national and international financial entities, with limits established by each institution.
In the bank selection for investments, the ones considered are those that have an investment grade credit risk rating, considering the three main international rating agencies (Moody’s, S&P and Fitch).
Placements can be backed up by treasury bonds of the country where the operation takes place and/or bank securities issued by top of the line banks, privileging the latter because they offer greater returns (always following the existing placement policies).
Enel Américas Group develops a Value at Risk measurement for its debt positions and financial derivatives, with the objective of monitoring the risk assumed by the company, limiting the volatility of the income statement.
The portfolio includes for the calculation of the Value at Risk composed by:
- Financial debt
- Derivatives for debt coverage
The calculated Value at Risk represents the possible variation of the portfolio's value previously described in the duration of a quarter with 95% confidence. For that purpose there is a volatility study of the risk variables that affect the position portfolio’s value, including:
- Libor for the US dollar.
- The different currencies in which our company operates, the regular local indexes for banking transactions.
- Exchange rates of the different currencies considered in the calculations.
The Value at Risk calculations are based on the extrapolation of future scenarios (in one quarter) of the market values of the risk variables in terms of the scenarios based on real observations for the same period (quarter) during five years.
The Value at Risk of a quarter with a 95% of confidence is calculated as a 5% percentile more adverse of the possible variations in the period.
Considering the hypothesis described above, the Value at Risk in a quarter of the positions described corresponds to US$ 630 million.
This value represents the potential increase in the debt and derivatives portfolio, so this value at risk is directly related, among other factors, to the value of the portfolio at the end of each quarter.