GEMSA
🚨 GEMSA faces a critical financial situation, having missed a bond coupon payment and now in a 30-day grace period to avoid formal default, highlighting severe liquidity stress.
⚖️ The company’s aggressive expansion, funded by substantial debt, has led to an unsustainable financial structure where its operating income (EBIT) is insufficient to cover its hefty interest expenses.
⚠️ Investors are caught in uncertainty due to suspended trading of its bonds and conflicting information from the company and rating agencies regarding its payment capabilities and financial health.
@ClaveBursatilTV:
“Generación Mediterránea, or GEMSA, has entered a critical period after announcing it did not make a scheduled coupon payment on its bonds, triggering a 30-day grace period to find a solution and avoid a formal default. This situation has caused significant concern in the market, as GEMSA is a major player in Argentina’s energy generation sector, a capital-intensive industry requiring substantial upfront investment and often leading to high levels of corporate debt. The company’s business model typically involves securing long-term power purchase agreements (PPAs), which guarantee future revenue streams, and then leveraging this by taking on debt to finance the construction and expansion of its power generation facilities. Historically, GEMSA explained its high debt-to-EBITDA ratios as a temporary phase, expecting these ratios to improve as new plants became operational and started generating increased revenue. However, the current crisis indicates underlying problems. The company’s total debt had reached approximately $600 million, with a significant portion initially financed at high interest rates. While efforts were made to refinance this debt under more favorable terms, a core issue appears to be that GEMSA’s earnings before interest and taxes (EBIT) are insufficient to cover its substantial financial expenses. This negative coverage ratio implies that the company is not generating enough profit from its operations to meet its interest payment obligations, effectively forcing it to take on more debt to manage daily operational costs and existing debt servicing. Several factors may have contributed to this precarious financial state, including potential delays in payments from CAMMESA, its primary off-taker for generated electricity, and possible setbacks in bringing new power plants or expansions online as scheduled, which would delay anticipated revenue flows while debt obligations remained. The company had attempted a new debt issuance in February, signaling that cash flow problems were already becoming acute. The situation has been further muddled by contradictory communications. GEMSA reportedly issued a formal notice of payment just two days before issuing a subsequent notice of non-payment. Compounding the confusion, credit rating agencies had assigned a relatively positive short-term rating (A-) to GEMSA’s debt shortly before the non-payment announcement, only to drastically downgrade it to a near-default status immediately afterward. These actions have significantly eroded investor confidence and raised questions about transparency and the reliability of information. For investors holding GEMSA’s bonds, the immediate consequence has been the suspension of trading for these securities, leaving them unable to sell their positions. The bonds in question have varying levels of guarantees, primarily structured through fiduciary trusts and pledges over specific company assets, such as turbines and generators. The MR39 series bond, for instance, is mentioned as potentially having a more robust collateral package. In the event of a confirmed default, bondholders would theoretically be able to activate these guarantee mechanisms to try and recover their investments, though this process is often complex and lengthy, with uncertain outcomes regarding the extent of recovery. The prevailing analysis suggests that GEMSA’s problem is primarily one of a severe financial mismatch and liquidity crisis rather than a complete failure of its underlying business, given its portfolio of operational assets and long-term energy sale contracts. Nevertheless, the company’s immediate future is highly uncertain. Potential scenarios range from successfully securing emergency short-term financing to bridge its liquidity gap, to a partial default affecting only the specific bonds currently in question, or, in the worst-case scenario, a cascading default impacting its entire debt structure. For now, investors who hold these bonds are in a waiting period, as GEMSA has until early June to utilize its grace period and announce a definitive course of action, which could involve a debt restructuring plan that bondholders would then need to evaluate.”
Watch the exact part of the video where Clave Bursátil TV discusses Generación Mediterránea S.A. here:
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Read more articles by the world’s top analysts on Generación Mediterránea S.A. (GEMSA) at the following link. GEMSA stock.
