Orazul Energy Peru ratings affirmed at BB as refinancing supports leverage outlook

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Orazul Energy Peru rating affirmed

Highlights

Orazul Energy Peru S.A.'s long-term issuer default ratings and USD380 million senior unsecured notes due 2032 affirmed at BB with a Stable Outlook by Fitch Ratings.
Orazul's contract portfolio averages 5.4 years with dollar-linked power purchase agreements, supporting medium-term revenue visibility and reducing Peru spot market exposure.
Fitch projects EBITDA leverage to average 4.3x with interest coverage above 4.0x and expects EBITDA of USD106 million in 2026, normalizing to USD85 million for 2027–2029.

Contract profile and refinancing underpin credit view

As reported by Fitch Ratings, the agency has affirmed Orazul Energy Peru S.A.'s long-term foreign and local currency issuer default ratings at BB and its USD380 million senior unsecured notes due 2032 at the same level, while maintaining a Stable Outlook.

Fitch says the rating reflects Orazul's improved contractual position, including a weighted average remaining contract life of 5.4 years with distribution companies, mining groups and other large industrial customers. Those U.S. dollar-linked power purchase agreements provide medium-term revenue visibility and help limit exposure to volatility in Peru's spot power market.

The agency also points to Orazul's hydroelectric generation profile and balance sheet structure. The company has no debt maturities until 2032 after refinancing notes previously due in 2027, and Fitch expects EBITDA leverage to average about 4.3x over the rating horizon, improving from 4.9x in 2022-2025, while EBITDA interest coverage stays above 4.0x.

Fitch's base case assumes EBITDA of roughly USD106 million in 2026, helped by higher spot sales after disruption at Transportadora de Gas del Perú S.A. It expects EBITDA to normalize at around USD85 million a year in 2027-2029, supported by contracted revenues, while free cash flow remains negative because of maintenance capex and distributions to the parent, with at least USD10 million of cash maintained.

Peru market position supports medium-term stability

Orazul operates as Peru's fourth-largest hydro company and contributes about 5% of the country's total injected energy, according to Fitch. Its two run-of-river plants, the 266MW Cañón del Pato and 110MW Carhuaquero facilities, operate across two separate river systems with an average capacity factor of around 65% and low variable generation costs, supporting priority dispatch as a low-cost producer.

Fitch expects low re-contracting risk because Orazul remains a baseload generator with a conservative contracting strategy. The agency says the company is likely to maintain a contracted position of roughly 65% and remain a net spot seller, which supports an average EBITDA margin around 70% despite exposure to hydrological conditions and merchant pricing on uncontracted output.

On ownership, Fitch views Orazul on a standalone basis following joint control by Canada Pension Plan Investment Board and iSquared Capital, each holding 50%. The agency considers that structure neutral for credit quality, saying it preserves continuity in financial, managerial and operational decisions, including liquidity, dividends and capital structure.

Fitch says negative rating pressure could emerge if Orazul cannot keep a contracted position above five years on a weighted average basis, if EBITDA leverage remains consistently above 5.0x with weaker interest coverage, or if acquisitions funded with debt weaken metrics. Positive rating momentum would require leverage to fall below 4.3x on a sustained basis and the company to maintain an adequate contracted position that keeps cash flows predictable.

Our earlier coverage of Fitch’s upgrade of Kallpa Generación S.A. to ‘BBB’ highlighted how stable electricity demand, efficient operations, and a strengthened debt profile supported better credit metrics. We also noted that the move signaled lower perceived risk for investors and underscored how balance sheet management continues to shape credit quality across Peru’s power sector.

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