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Endesa (ELEZY) Risk Analysis
Risk Overview Q4, 2019
Source: the company's latest filing for the period ended Dec 31, 2019, filed Apr 29, 2020
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1The illiquidity of our ADSs and common stock could unfavorably affect the prices of our securities, the ability to maintain a favorable tax status in Chile, and registration with the U.S. SEC.
Following the completion of the 2018 Reorganization, only 6.4% of our common stock was held by minority shareholders. As of the end of 2019, ADSs comprised only 0.3% of the total outstanding shares of our common stock. Accordingly, our common stock and ADSs are not widely held, and the volume of trading has been low and sporadic. Our common stock and ADSs are subject to increased price volatility and reduced trading liquidity. This lack of liquidity increases the difficulty of selling our securities in large blocks without adversely affecting their price. The insignificant level of ADS participation, in turn, may influence us to deregister from the SEC in the future if we satisfy the deregistration requirements. A deregistration from the SEC would lead to the discontinuation of annual reporting on Form 20-F, and current reporting on Form 6-K, and, consequently, a reduction in the amount of disclosure that is currently available to ADS holders. At the end of 2018, we voluntarily delisted our ADSs from trading on the NYSE. Our ADSs are now quoted in the over-the-counter market on the OTC Pink. Quotation of our ADSs on the OTC Pink may limit the liquidity and price of our ADSs more than if our ADSs were listed and traded on a national securities exchange. Trading in securities quoted in the OTC Pink is often thin, volatile, and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. Some investors may perceive our ADSs to be less attractive because they are traded on the OTC Pink. We may not have the analyst coverage that accompanies companies listed on national securities exchanges. Furthermore, institutional and other investors may have investment guidelines that restrict or prohibit investing in securities quoted on the OTC Pink. These factors may have an adverse effect on the trading, liquidity, and price of our ADSs, and holders of ADSs may have difficulty selling their securities. Following the 2018 Reorganization, the primary market for our shares of common stock is now the Santiago Stock Exchange. However, our shares may be unable to meet the criteria for continued listing on the Chilean stock exchanges, and our common stock could be delisted from these exchanges. Our common stock may also lose the "sufficient stock market liquidity" (presencia bursátil) status on the Chilean stock exchanges, which would result in loss of a capital gains tax exemption for certain holders of our shares under Chilean law. All these factors relating to low stock trading liquidity and a small minority shareholder base may adversely affect the price of our securities.
Risk Highlights Q4, 2019
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 22
- Regulation - Risk 1ChangedRegulatory authorities may impose fines on our subsidiaries due to operational failures or any breaches of regulations.
Our electricity business is subject to regulatory fines for any breach of current regulations, including failures to supply energy. We and our subsidiaries are supervised by local regulatory entities and may be subject to fines in cases where, the regulator determines that the we are responsible for the operational failures that affected the regular energy supply to the system, including coordination issues. Regulations establish a compensation fee to end customers when energy is interrupted more than the standard allowed time due to events or failures affecting transmission facilities.
- Regulation - Risk 2ChangedGovernmental regulations may unfavorably affect our business, cause delays, impede the development of new projects, or increase the costs of operations and capital expenditures.
Our business and the tariffs that we charge to our customers are subject to extensive regulation that may negatively affect our profitability. For example, governmental authorities might impose rationing policies during droughts or prolonged failures of power facilities, which may adversely affect our business, results of operations, and financial condition. Some aspects of the Chilean electricity law have been subject to significant regulatory changes, and any such changes may unfavorably affect our future operations and profitability. For example, in the context of the social crisis that began in October 2019, the government established a transitional mechanism for stabilizing electricity prices for customers under the regulated price system. The mechanism eliminates the price increase of 9.2% that would have been applied to regulated customers as of July 2019 and defers the price increase for the sale of electricity under contracts between generation and distribution companies that start before 2021. A price stabilization funding program was implemented by the CNE and is effectively financed by companies in the generation industry, including us, through accounts receivable that are generated from the differences between the contractual rates and the stabilized rates, which are expected to enable the generation companies to recover the lost revenues by December 31, 2027. We expect to suffer a financial loss as a result of this revenue deferral because generation companies are being asked to finance such deferral. Other Chilean electricity sector regulations may also affect the ability of our generation companies to collect revenues sufficient to cover their operating costs and adversely affect our future profitability. Our operating subsidiary is also subject to environmental regulations that, among other things, require us to perform environmental impact studies on future projects and obtain construction and operating permits from local and national regulators. Governmental authorities may withhold or delay the approval of these permits until the completion of environmental impact studies. Therefore, their processing time may be longer than expected. Environmental regulations for existing and future generation capacity have become stricter and require increased capital investments. Any delay in meeting the required emission standards may constitute a violation of the environmental regulations. Failure to certify the original implementation and ongoing emission standard requirements of such monitoring systems may result in significant penalties and sanctions or legal claims for damages. We expect that more restrictive emission limits will be established in the future. We are also subject to an annual "green tax," based on our greenhouse gas emissions in the previous year. Such taxes may increase in the future and discourage thermal electricity generation. Changes in the regulatory framework are often submitted to legislators and administrative authorities, and some of these changes could have a material adverse effect on our business, results of operations, and financial condition.
- Regulation - Risk 3AddedOur business faces risks from the promotion of decarbonization efforts both on a global and on a national scale.
In June 2019, the Chilean government announced its plan to phase out coal entirely from its energy mix by 2040 and achieve carbon neutrality by 2050. Under this plan, we and GasAtacama Chile S.A ("GasAtacama," now merged into us) signed an agreement with the Chilean Ministry of Energy. The protocol defines the process for the progressive closure of our coal-fired power plants Tarapacá (158 MW), Bocamina I (128 MW), and Bocamina II (350 MW). Under this agreement, we are irrevocably obligated to close Bocamina I and II, and Tarapacá's coal plant. The Tarapacá coal plant was closed in December 2019. The deadlines for closing Bocamina I and II are December 31, 2023, and December 31, 2040, respectively. Even though the Chilean government's plan to achieve decarbonization may overlap with our companies' sustainability strategy, the actual implementation of the governmental targets may exert considerable pressure on us and on our ability to satisfy our contractual obligations with other cleaner sources. In turn, this may increase our expenses, decrease our profitability, and limit our ability to satisfy electricity demand fully.
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