Enel Chile SA

NYSE:ENIC

Earnings Call Transcript 2018-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to Enel Chile Full Year 2018 Results Conference Call. My name is Shoelle, and I will be your operator for today's conference. [Operator Instructions] As a reminder, this conference call is being recorded.

During this conference call, we make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect only our current expectations, are not guarantees of future performance and involve risk and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in Enel Chile's press release reporting its full year 2018 results, the presentation accompanying this conference call and Enel Chile's annual report on Form 20-F, including under risk factors. You may access our full year 2018 results press release and presentation on our website, www.enel.cl, and our 20-F on the SEC's website, www.sec.gov.

Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate, except as required by law.

I would now like to turn the presentation over to Ms. Susana Rey, Head of Investor Relations of Enel Chile. Please proceed.

[Susana Rey, executive]

Good morning, ladies and gentlemen, and welcome to Enel Chile's 2018 results presentation. My name is Susana Rey, Head of Investor Relations. Here with me are Paolo Pallotti, CFO -- CEO of Enel Chile; and Marcelo de Jesus, CFO of the company. We invite you to follow along with the presentation uploaded on our website, and as always, we will have a question-and-answer session for those on the call. After this call and Q&A session, our IR team will be continue to be available to provide you with any detailed information you may need with respect to the figures included in this presentation.

Now please let me hand over the call to Paolo.

[Paolo Pallotti, executive]

Thank you, Susana. In this presentation, first I'll provide some highlights for the period and take you through the operational performance of the full year. Then, I will hand over the presentation to Marcelo to comment on our financials.

Let's start on Slide #1. Our 2018 results show that we are being set in the path to deliver on the pillars of our strategy. Our growth was mainly fueled by renewables, achieving 63% of our portfolio in terms of installed capacity. The additional 1.2 gigawatts of renewable capacity through EGP consolidation improved our mix of generation and contributed as the main driver of our EBITDA margin increase from 56% to 45%.

I want to highlight that EGP brought to Enel Chile knowhow and strong pipeline of renewable development, allowing us to add 1 gigawatts capacity, mostly wind and solar in the period 2019, 2021.

In infrastructure and network, we focus our investment in smart meters and other digitalization technology as a way to improve network resilience and quality of service performance, in line with the new technical standards and targets established by the regulator during 2019.

Enel X has been a key player in the electricity -- in electric mobility of the country through the delivery of the first 100 electric buses in the public transportation. We continue working towards Enel X as a key player providing our customer with innovative energy solution and digital services. 2018 results show Enel X's EBITDA growth around 120%.

We continue to pay an extraordinary attention to our operational efficiency. Cash cost was reduced by USD 23 million or 4% in real terms. All in all, 2018 performance of our businesses allowed us to deliver an EBITDA growth of 21% and improved our EBITDA margins from 29% to 36 %.

Finally, it is important to mention that all these achievements have been made in sustainable approach, carrying out our project that contribute to improve the awareness of the communities involved.

I would like to comment on delivery with respect to 2018 guidance. Let's first have a quick snapshot on 2018 country's macroeconomic environment.

Chilean GDP growth was 4%, inflation 2.6% and the average exchange rate CLP 641 to U.S. dollar, lower 1.2% than last year.

Operational side, our distributed energy grew 1%, while the number of our clients grew 2%. Our installed capacity achieved 7.5 gigawatts, an increase of 1.2. Our net production achieved 20 terawatt hours, a growth of 2.9 totaling from renewable sources.

Within this context, we met our guidance for EBITDA, FFO and net income. Most importantly, our delivery in EBITDA, strong cash flow conversion rate and our capital structure are key to keep our company growing and improving our asset portfolio in a profitable and sustainable way. Along this path, EBITDA and net ordinary income for the period 2019/'21, we deliver a compound annual rate growth of 10%.

Moving to Slide 3. We will see how we allocated our CapEx, which increased by 19%, reaching USD 550 million during 2018. Asset management CapEx was slightly decreased by USD 8 million during the period, mainly due to predictive maintenance and improved generation mix, thus contributing to our cash cost efficiency. Customer CapEx maintaining the range of USD 55 million to USD 60 million allocated to new clients connections.

Regarding asset development increase by around USD 100 million during the period, mainly due to the Los Cóndores project and investments to improve the resilience and the digitalization of our grids. 2018 investments were allocated to renewables growth and to improve the quality of service of our clients. This will continue during the next 3 years as we will invest around USD 1.4 billion in renewable capacity and USD 500 million in our distribution business.

All our future investments will contribute to Chile's capitalization ambition and will allow us to boost our generation cost efficiency, reduce hydrology risk and improve the quality of service to our clients.

Slide 4, we move to the operational analysis of our generation business. Installed capacity increased 17% with a consolidation of EGP in April 2018, amounting 7.5 gigawatts. Net production increased by 17%, amounting to 20 terawatt hours, driven by 2.3 terawatt hour of nonconventional renewable generation mainly derived from EGP integration, 1.7 terawatts hour of hydro generation due to better hydrology primarily in Ralco, Pehuenche, Pangue [indiscernible] generation. Hydro renewable generation drove lower thermal dispatch contributed to improve our generation margins, minus 0.9 terawatt hour of lower oil and gas generation, minus 0.1 terawatt hour of lower coal generation.

Physical energy sales increased by 4% or 1 terawatt hour, primarily due to 2 terawatt hour of higher contracted sales with 3 customers, offset by 9.5 terawatt hours of lower consumption of distribution companies due to the customer shift to free market.

Let me highlight that with our current portfolio of assets, we have been able to increase our emission-free generation around to 70% and improve our generation EBITDA margin from 56% to 45%.

Now on Slide #5 regarding our network businesses. Given the current regulatory framework and business opportunities, we're focusing on digitalizing our grids, installing digital meters within our customer base, improving the quality of service and network resilience.

On digitalization side, during 2018, we installed 191,000 new smart meters, reaching a total amount of 292,000 at the end of 2018. Our plan is to install around 1 million smart meters by 2021. Additionally, we installed 220 new telecontrols reaching a total of 1,700 equipment. Our resilience was decreased. We replaced a total amount of 188 kilometers of cable [ so early ]. As a consequence, our interruption in the SAIDI showed a 10% improvement with respect to last year, net of weather effect. Please remind that the indicator in 2017 was negatively affected by certain level of rain and snow. Including those effects, SAIDI would have reached 230 minutes showing improvements of 23%. SAIFI also decreased from 1.7 to 1.5 numbers of interruption.

With respect to our customers, they rose by 2% or 43,000 during this period, reaching 1.9 million clients with a total energy distributed of 16.5 terawatt hours, a 1% increase. Energy losses remained stable, reducing from 5.1% to 5%, very close to technical losses, the lowest level in South America and the second one in Enel Group.

On Slide 6, let me focus on Enel X. During 2018, EBITDA increased by USD 12 million, a growth of 2.2x. It is important to mention that with this result, we already reached the target set for 2021. Also, it's worth mentioning that all business lines are showing their growth in gross margin and maintaining OpEx level.

With reference to electric mobility, our effort are aligned with the government's mobility strategy aimed that by 2040, 100% of the public transportation will be electric and also boost private electric mobility up to 40%. In fact, the government announced that they will incorporate at least 500 additional electric buses to the Santiago system during 2019.

In this respect, the arrival of the 100 electric buses has positioned our company as a pioneer of electric mobility and all services and solution related to that. And this new initiative will give us new opportunities to consolidate our leadership position in this business.

With the reference to the industry, Enel X is working to develop comprehensive and efficient industrial solutions, such as energy consulting, demand-side management and energy monitoring, contributing with almost 40% of Enel X gross margin.

As far as E-City is concerned, the rise of mega city is creating a natural market for specific infrastructure, such as comprehensive solution of efficient public lighting, urban advertising infrastructure and integrated public safety system. During this year, we have increased our public lighting points by 11%.

Finally, focusing on Enel X, which supports ad hoc services to satisfy customer needs and improving the quality of life for people offering products such as air conditioning, photovoltaic systems, insurance and systems programs, among others.

Let's comment on sustainable development goals on Slide 7. In line with Enel Chile Group strategy, Enel Chile has been taking action to improve our shared value creation through initiatives with the communities touched by our businesses and to promote economic development where it operates, carrying out project that contribute to achieve sustainable development goals.

For example, with respect to sustainable development goals 4, 7 and 8, our projects have benefited more than 570,000 people since 2015 by focusing in high-quality education programs, access to affordable and clean energy and economic development.

About climate action, Enel Chile has contributed to fight against climate change by reducing its CO2 emission to 192 grams per kilowatt equivalent, mainly due to 63% renewable capacity. It is important to mention that this number is the lowest in the Enel Group. Enel Chile is also contributing in digitalization and sustainable cities, adding more than 290,000 smart meters by 2018 and more than 220 charging points to feed the public and private electric transportation system in Santiago. During 2019, 2021, we will work towards 2 new SPG, SPG9 industry innovation, infrastructure and SPG11 sustainable city and communities.

Let's move to Slide #8. During 2018, Enel Chile has been confirmed once again in the FTSE4GOOD Index Series, which ranks the top global companies by evaluating their environmental, social and governance practices following the index review of the second half 2018. In addition to this ranking, Enel Chile is listed in other leading sustainable indexes like -- such as Dow Jones Sustainability Index in Emerging Markets, the MILA Pacific Alliance in Chile.

Also, during this year, we were included also in the Vigeo Eiris top 100 ranking on best emerging markets and awarded on ALAS20 the second place in sustainability and corporate governance. Enel Chile sustainability leadership is increasingly growing the interest of EPG investors with interest in the company steadily growing.

Now I will pass the call to Marcelo to review our consolidated results. Marcelo?

[Marcelo de Jesus, executive]

Thanks, Paolo. Good morning, everyone.

First on Slide 10, let me present the financial highlights for this year.

Revenues decreased 3% or $102 million, primarily due to a reduction in capacity payment attributable to the interconnection shifting, lower revenues in the generation business related to the migration of regulated clients to free market and a lower average sales price when expressed in Chilean pesos. Nevertheless, our unique portfolio of assets and strategy positioning were able to more than offset such slightly reduction in revenues.

Our EBITDA was up by almost 21% or $238 million, showing a growth on all of our business lines, and most importantly, with a higher margin as we will see in the next slides.

Attributable net income was up by 19% or $91 million in line with EBITDA growth. Gross CapEx increased 19%, reaching $550 million, mostly on asset development on renewables and digitalization, as previously mentioned by Paolo.

Company net debt reached $3.3 billion, explained by the consolidation of EGP and the new debt issued by Enel Chile to finance the tender offer of Enel Generación, which has significantly contributed to our growth and margin improvement as well as we will see in the next slides.

Finally, our cash flow continues to be strong, representing around 8% of our EBITDA, reaching $1.1 billion, 10% higher than 2017. This is an important aspect of our business, which enables us to continue growing and sharing value with all stakeholders.

Now on Slide 11, let me show you the breakdown and the drivers of our 21% EBITDA growth. In our generation business, EBITDA growth was around $207 million with an important contribution from the additional 1.2 gigawatts renewable capacity coming from EGP. With respect to the distribution business, which includes networks, Enel X and retail, EBITDA growth was almost $41 million with an important contribution from Enel X representing almost 1/3 of such growth and demonstrating the importance of this business line in the energy transition going forward. Holding activities consumed additional $11 million related to the Elqui project.

Finally, and most importantly, I would like to highlight that EBITDA growth came with a better EBITDA margin, which reached 36% improving from the 29% last year. This is a result of our strategy on a more efficient portfolio of assets through additional renewable capacity, high profitable innovative services and solutions from Enel X and our focus on operational efficiency through the cash cost reduction.

Now let's move to Slide 12 to see more details on our performance on the generation business. Generation CapEx amounted to $395 million, out of which around $300 million relates to asset development, primarily project Los Cóndores. I want to highlight our gross margin improvement from 45% in 2017 to 55% in 2018, mainly due to our strategy of adding more renewable assets to our portfolio, which means higher margin and hydrology risk mitigation. This led to an EBITDA growth of around $206 million or 23%.

Let's move to Slide 13 where we'll focus our attention on distribution business. Distribution CapEx amounted to $150 million, out of which $44 million were allocated to asset management and $51 million allocated to asset development. The remaining $54 million were invested in new connections.

The EBITDA from our distribution business increased $42 million when compared to 2017, mainly due to Enel X contribution equivalent to $20 million -- $12 million, sorry, due to the positive performance in both E-mobility and industry business. $19 million of lower competition customers and fines recorded last year in the second half in connection with the extraordinary rainfall and the snow events that took place that year. Finally, $9 million as a consequence of lower extraordinary nonrecurring personnel costs related to 2017.

Now on Slide 14, let's take a deeper look at the main drivers of our net ordinary income. Depreciation and amortization reached $344 million, an increase of $93 million due to the addition of EGP assets. Financial results amounted to an expense of $173 million, an increase of $138 million, mainly due to the $75 million of higher financial expenses of Enel Chile's new debt and $54 million from the consolidation of EGP Chile.

Other nonoperating results decreased by $164 million due to the nonrecurring impact of the sales of Electrogás reported on last year. Taxes increased by around 7% primarily as a consequence of the higher corporate tax rate of the $13 million, offset by lower tax expense as a consequence of the sale of Electrogás in 2017. Minority net income decreased by 71% mainly as a consequence of the higher stake of Enel Chile in Enel Generación since April 7 last year.

Given all the aforementioned, ordinary net income increased 4%. If we exclude the sales of Electrogás in February 2017, reported net income would have grown 19%.

Now on Slide 15, let's take a look to our debt. Our gross debt increased by about $2.4 billion versus 2017, amounts to $3.6 billion, primarily as a consequence of the debt raised to finance the Elqui project and the consolidation of the EGP Chile debt.

The average cost of our debt decreased to 5.2% versus last year, explained by a lower interest rate of EGP and Enel Chile debt. Our net debt increased by $2.7 billion, mainly due to the acquisition of 34% additional stake of Enel Generación for $1.7 billion. The consolidation of EGP net financial debt of $1.2 billion, offset by the positive free cash flow after CapEx and dividends of more than $200 million.

Finally, I want to highlight that we feel comfortable with the leverage level company achieved this year due to its strong cash flow generation, and we will see in the next slide as well as to the EBITDA growth we expect for the period of 2019, 2021, which we reduce such level to below 2x net debt to EBITDA.

Moving to cash flow on Slide 16. FFO in 2018 amounted to $1.1 billion, which represents a strong cash conversion ratio of about 80% of our EBITDA. This is an important aspect of our business, which clearly shows that cash from our operations is sufficient to fund 100% of our CapEx and dividends resulting in a net free cash flow. The strong cash flow added by the expected reduction of net debt to EBITDA ratio in the coming years give us flexibility to continue growing our business, improving our profitability and capturing opportunities from the energy transition.

Now I will pass the call to Paolo for closing remarks.

[Paolo Pallotti, executive]

Energy transition is affecting all segments of the value chain with opportunities to create substantial value to those players that will be able to operate with a necessary scale of flexibility. Enel Chile has a strong and unique portfolio of assets with a business model that will enable us to take advantage of those new opportunities that energy transition creates.

In this new energy context, Enel Chile reported an EBITDA of USD 1.4 billion, which means 21% growth, improving EBITDA margin from 91% to 36%, all this mainly driven by our strategy of adding renewable capacity, taking advantage of EGP asset and track record on developing renewables projects.

In networks, our investment in digitalization, a resilience of the improved quality of service to our clients as demonstrated by the 10% reduction of SAIDI, which achieved 178 minutes, the lowest in South America.

Enel X represent a strong growth of 2-point times EBITDA, already contributing to almost 1/3 of distribution business EBITDA growth in 2018. Enel X will continue to have a key strategic role towards our customers providing the platform of innovative new services, products and solutions as we are seeing in its contribution to the development of electric mobility in Chile.

Additionally, our strong cash flow generation will be the fuel to allow the company to continue sustainable growth, improving our portfolio of assets with a comfortable capital structure. The inclusion of Enel Chile in relevant sustainability indexes is a recognition of our commitment to consider sustainability as part of our business model, delivering our targets in conjunction with the support of the economic and social development of the communities and areas where we operate.

I would like to thank you for your attention. And now let's open the Q&A session in which I will be glad to answer together with Marcelo to any questions you may have.

[Operator]

[Operator Instructions] Our first question comes from Rodrigo Mora with Moneda.

[Rodrigo Mora, analyst]

I have 3 subjects that I would like to understand. The first one is, when -- how much Enel Green Power contributed to the consolidated EBITDA of the company? The second is related to the intercompany loans with Enel Finance International by approximately $640 million. I would like to understand if this intercompany, the management will try to renegotiate the terms. And the third question is related to Argentinian natural gas. I would like to know if the company is starting to buy Argentinian natural gas and using in their -- in its cycle combined.

[Paolo Pallotti, executive]

Thank you, Rodrigo. I will take the last question and I'll leave the first 2 to Marcelo. Regarding the gas Argentina, yes, we are an importer of gas and we are using the gas imported from Argentina in our facility. We are one of the largest, or the largest, importer considering the first month of consumption in 2019. We have 3 contracts active and we are -- as I said, we are burning this gas in our CCGT in Central Chile. This put the CCGT when using the Argentinian gas in advance compared to other CCGT and, in some cases, to certain coal-fired plants.

[Marcelo de Jesus, executive]

With respect to your first question on contribution of EGP to our consolidated EBITDA, yes, that was the main driver for our EBITDA growth. But I think that it's important to highlight beyond the math, let's say, EGP, as we know, is renewable and this is more efficient generation. So if we take our generation this year, we add the 2.9 terawatt generations, out of which 2.3 terawatts came from renewable generation. So that is contributing more than to EBITDA to improve our profitability and improving our EBITDA margin. So I want to highlight our strategy on how to face the new environment in the energy sector and how we are improving profitability to our business. With respect to your second questions with the financing with FE, yes, we have been looking to refinance, but again, I want to highlight that not only FE, we take a look of our total financial debt and during 2009, we're -- 2019 sorry, we are looking to how to improve our liability. If we look to last year, we have already reduced our average interest rate to 5.7% this year, but we want to do even more this year and then we are looking not only to FE intercompany loans, but to all of our liabilities.

[Operator]

And our next question comes from Arturo Murua with Santander.

[Arturo Murua, analyst]

My question is regarding to your leverage. I would like to know what ratio of net debt/EBITDA you feel comfortable or would you have an internal target?

[Marcelo de Jesus, executive]

This is Marcelo. We do not have official formal target. But as I mentioned during the call, we feel comfortable with this level of leverage. So we are around 2.4 net debt/EBITDA and we think that this is a comfortable level. But not only because 2.4x, we feel comfortable because of our cash generation, I think which is the strongest part of our business, which -- so besides delivering an EBITDA growth this year and coming years, this will turn in cash and this will help to fund our growth. And we expect, as we have announced in our strategic plan, we expect this leverage come down to below 2x net debt to EBITDA.

[Operator]

[Operator Instructions] Our next question comes from Enrico Bartoli with MainFirst.

[Enrico Bartoli, analyst]

My first question is regarding your guidance for 2019. You're expecting $1.7 billion EBITDA compared to $1.4 billion this year. Can you a bit elaborate on the drivers of this growth that you're expecting and particularly some comments on the hydro conditions and the evolution of the margins in the power generation business that you're expecting this year? The second question is related to the -- your power generation EBITDA. If I make a proper estimate of the contribution from Enel Green Power, actually, the growth in conventional power generation EBITDA was single digit, while you had a significant increase in the hydro generation volumes. If you can elaborate a bit on the evolution during the year of the unit margins for your traditional plans in this business. And the last one is related to Slide 4. You're showing the breakdown of your sales between regulated and nonregulated customers. There has been a significant increase in liberalized sales. If you can give us some perception on how margins are affected by this different mix.

[Paolo Pallotti, executive]

Okay. I will make some comments about hydro condition and the last question and then leave the other 2 to Marcelo. Regarding the hydro condition, this year despite the first part and the central part of the year with very poor hydro condition, we reached a total amount of -- generation of 11.6 terawatt hour. This recovery has been, let's say, reached during the fourth quarter due to, let's say, the snows and rains that we had in the [ Ondinas ] area during -- between end of September, October and last part of November. For 2018, we keep the level of hydrology constant. For one side, I have some comments also generally saying that this year is quite good in hydrology because of the Niño. Honestly, we keep these level constant considering also the starting point that it is quite good on our side. Regarding the sales, you see the shift between regulated and nonregulated customer because, as you may imagine, there is a shift of clients that are trying to contract in the free market, we are referring of the segment between 500 and 5,000 kilowatt of capacity interconnected. This shift clearly reduce the overall consumption of the distribution and we continue in our portfolio of contracts to serve distribution and we are enlarging the portfolio of customer in the free market. And so what you see here is this shift and we are able to capture a strong percentage of the customer that are moving from regulated to the free market. Marcelo?

[Marcelo de Jesus, executive]

Yes. With respect to our guidance for 2019, the growth is basically a combination of the 2 main aspects. The first one, as we have been saying, 2018, we will be even -- we introduced even higher renewables generation, which is more efficient and then it contributes to improve EBITDA. And this is combined with our portfolio of contracts, which is already signed. So we are providing clients with -- and we have signed -- contracts are already signed and supplying these clients with more efficient renewable. And the third aspect is, we will continue focusing on our operational efficiencies through the cash cost and OpEx. So this is basically the 3 main drivers for our growth in EBITDA for 2019.

[Operator]

And our next question comes from Andrew McCarthy with Citi.

[Andrew McCarthy, analyst]

My first question was just a follow-up on the split you're seeing of regulated and nonregulated customer sales. Would it be reasonable to use the fourth quarter figures, for example, the 3.6 terawatt hours that we saw for regulated customer sales and assume that, that level should -- those levels should continue going forward or should we be thinking also there's still some more migration perhaps to come? Maybe you could take that question first.

[Paolo Pallotti, executive]

Yes. Please consider that if we look at the overall segment of potential free customers, the overall, including also the ones that already moved to the free market, has a consumption in the range of 8 terawatt hour. Today, at least 1/3 of this customer is remaining in the regulated sector. So this shift may continue and the remaining, it is a large percentage of the customers is served by Enel Chile. But I'm expecting that additional numbers of customer will move from regulated to the free market in the short term.

[Andrew McCarthy, analyst]

Okay, great. And my other question was on the leverage net debt to EBITDA. Could you remind us by when you're expecting to go below 2x net debt to EBITDA? And also a related question, how do you feel with respect to your leverage and the possibility of participating in M&A processes at the moment? Do you feel your level of leverage will permit you to be able to do that? Or do you think you need to look at other sources of financing if you were to participate in those kinds of processes?

[Paolo Pallotti, executive]

I'll take the last question and then I'll leave the other to Marcelo. Regarding the leverage, the important point that Marcelo stressed in the presentation is that the company is able to produce more than $1 billion cash flow -- $1 billion of cash flow that is covering -- more than covering CapEx and distribution of dividends. Regarding M&A, it's a matter of size and timing because our trend is to reduce the ratio in, let's say, consider medium short term. I would say short term considering that we can go below in the range of 2% -- or 2x the end of 2020, nearly '21. So it depends clearly on size and timing and the kind of transaction. At the moment, we feel quite comfortable with the current capital structure and generation capacity of the company.

[Marcelo de Jesus, executive]

As Paolo said, we expect to be below 2. As we have announced in our strategic plan, around 1.6 by 2021. This is basically due to our growth in the business and improving profitability and EBITDA and our cash. So our cash flow generation is really strong, and as Paolo said, really sufficient to fund our average annual CapEx of $700 million for the next 3 years and our cash generation will be over $1 billion. So I think those are the 2 main strong drivers of our business that will allow us to improve our leverage and have flexibility to look at opportunities in the future as well.

[Operator]

[Operator Instructions] Our next question comes from Rodrigo Mora with Moneda.

[Rodrigo Mora, analyst]

I have 2 questions. The first one is related to the BHP bidding, I would like to know if Enel was selected in this process. And the second one is, coming to the FE intercompany loan, I would like if you tell us the cost -- the financial cost of this debt.

[Paolo Pallotti, executive]

Okay. Regarding the BHP, this is a large process, a large liquidation that is taking place this year. The overall volume is in the range between 3 and 6 terawatt hour, and we expect that this transaction should be finalized by this year-end. We have -- let's say, we have been included in this second stage. And so we will participate to this liquidation. For sure, we will aim to have, let's say, a good role in this transaction, let me say, an important role in this transaction.

[Rodrigo Mora, analyst]

And with respect to the cost of -- the financial cost of the FE intercompany loans?

[Marcelo de Jesus, executive]

So do you want to know the current cost, Rodrigo?

[Rodrigo Mora, analyst]

Yes, please.

[Marcelo de Jesus, executive]

Yes. This is about LIBOR plus 4.9%.

[Rodrigo Mora, analyst]

LIBOR plus 4.9% -- 4% and -- 5%?

[Marcelo de Jesus, executive]

4.9%.

[Rodrigo Mora, analyst]

4.9%. Okay. So this is the main loan that the company will try to renegotiate this year, right?

[Marcelo de Jesus, executive]

Not the main, Rodrigo, not the main. So we have $3.6 billion total debt. We are looking for our total financial debt and we are looking at opportunities to reduce the cost.

[Operator]

I'm not showing any further questions at this time. I would now like to turn the call back over to Susana Rey for any closing remarks.

[Susana Rey, executive]

Okay. Since there is no further question, I would like to thank you all for participating today in our call. If you have any doubts, any question, you feel free to call -- contact our Investor Relations team or myself. So thank you so much, and have a nice weekend.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.