Fitch Upgrades Instituto Costarricense de Electricidad’s Outlook to Positive, Affirms ‘BB’ Rating

Fitch Ratings has affirmed the Instituto Costarricense de Electricidad y Subsidiarias (ICE) Long-Term Issuer Default Ratings (IDRs) at ‘BB’ and revised its Rating Outlook to Positive from Stable. The National Long-Term Rating and senior unsecured local notes were also maintained at ‘AA+(cri)’ with a Stable National Scale Outlook. ICE continues to be a strategically significant entity within Costa Rica, holding dominant positions in both the electricity and telecommunications sectors.

Despite the anticipated negative free cash flow resulting from high capital expenditures through 2027, the company’s leverage is projected to remain stable at approximately 4.5x, supported by a strong liquidity position. Regulatory improvements have enhanced transparency in tariff-setting, ensuring fair pricing that reflects operational costs and investment returns. ICE’s revenue growth is expected to align with the projected 3% annual GDP increase, with a notable portion of capital expenditures allocated to modernizing its electricity infrastructure. However, potential risks to the rating could arise from a sovereign downgrade, diminished government support, or adverse regulatory changes, though an upgrade in the sovereign rating could result in a positive adjustment to ICE’s rating.

Fitch Upgrades Instituto Costarricense de Electricidad’s Outlook to Positive, Affirms ‘BB’ Rating

Fitch Ratings has affirmed the Instituto Costarricense de Electricidad y Subsidiarias (ICE) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BB’, while upgrading its Rating Outlook from Stable to Positive. ICE’s National Long-Term Rating remains at ‘AA+(cri)’, and its senior unsecured local notes are also rated ‘AA+(cri)’, with a Stable National Scale Outlook. ICE is strategically important to Costa Rica’s government, playing a central role in the country’s electricity and telecommunications sectors. It controls around 75% of the country’s installed electric power capacity and generates 85% of its electricity. Additionally, ICE holds a significant 44% share of the postpaid mobile telecommunications market, reinforcing its dominance and importance in the national economy.

The company’s close relationship with the government provides support for its financial and operational needs. Despite anticipated negative free cash flow (FCF) due to high capital expenditures through 2027, ICE’s leverage is expected to remain steady at around 4.5x, with annual capital investments averaging CRC560 billion, primarily aimed at modernizing electricity infrastructure. Recent regulatory reforms have enhanced transparency in the tariff-setting process, ensuring that tariffs cover costs and provide returns on investment.

ICE remains a dominant player in the electricity sector, generating 85% of the country’s electricity, and holds a 44% share of the postpaid mobile market. Comparatively, while ICE’s financial leverage of 4.5x is higher than Panama’s Refinadora Costarricense de Petróleo S.A. (Recope, AA+(cri)/Stable) at 3.3x, it benefits from strong government backing similar to Mexico’s Comisión Federal de Electricidad (CFE). Projections for 2025-2027 indicate stable revenue growth driven by a 3% annual GDP increase, with ICE’s leverage expected to stabilize between 4.0x and 4.5x. ICE plans to spend CRC1.9 billion on capital expenditures and maintain its dominant position in the telecommunications market.

While a sovereign downgrade, weakened government support, or adverse regulatory changes could pose risks, an upgrade in Costa Rica’s sovereign rating could lead to a positive rating change for ICE. The company also has a strong liquidity position, with CRC645 billion in cash and equivalents as of Q3 2024 and a debt load of CRC1.984 billion.

ICE’s financial health is further supported by its strategic importance to the Costa Rican government, which helps mitigate risks associated with its capital expenditures and debt issuances. Despite expectations of negative free cash flow due to high capital spending, ICE’s robust cash reserves provide a cushion. ESG considerations, particularly its government ownership structure, have a minimal impact on ICE’s credit rating, as the risks linked to its majority state ownership are outweighed by its strategic value and stability.