(Argus, 27.Jan.2021) — Colombia’s state-controlled Ecopetrol is seeking to acquire state-controlled electricity transmission giant Isa in an aggressive move away from its core oil business.
Ecopetrol presented a non-binding offer for the government’s stake in Isa, equivalent to more than 51pc of the shares in circulation, the company said this morning.
The value of the proposed acquisition is $3.5bn-$4bn, and would be financed through the sale of 8.5pc of Ecopetrol shares, internal cash flow and new debt in 2021, Ecopetrol chief executive Felipe Bayon said today. The government currently holds 88.5pc of Ecopetrol.
The Colombian state would continue to control the overall energy enterprise through its majority stake in Ecopetrol, a structure that the oil company says does not require it to issue an initial public offering (IPO) for Isa shares.
“The resilience of the (Ecopetrol) Group would be strengthened by having a larger portion of stable and predictable long-term income, while reducing exposure to the volatility of the oil price,” Ecopetrol said.
At yesterday’s local stock market close, Isa was valued at an estimated at 27.6 trillion Colombian pesos, meaning the majority stake in the company would be worth the equivalent of around $4bn, according to Juan Fernando Pelaez a trader at the Medellin-based brokerage Valora Analitik.
The deal would complement Ecopetrol’s existing oil-focused business, offer more geographic diversity and leapfrog the company’s decarbonization campaign, Ecopetrol said.
“This would be a transformational step for Ecopetrol in the direction of becoming a leader in energy transition and decarbonization. These world-class low-carbon assets would allow us advance decisively and proactively in this strategy,” Bayon said.
The acquisition would not impact the company’s $3.5bn-$4bn capital investment plan for 2021, he said.
Isa has not commented so far today.
The transaction would be carried out through an “inter-administrative contract” with Colombia’s finance ministry that could be signed in about three months, while the 8.5pc stake sale to help finance the deal could take six months, Bayon said.
While Ecopetrol has diversified into the US and Brazil in recent years, Isa has a much broader geographic reach, with operations in six South and Central American countries including Brazil, Chile and Peru. Most of its business is focused on transmission, but the company is also engaged in highway concessions and fiber optics.
Like Ecopetrol, Isa is controlled by the Colombian government, but a larger portion of the company is traded publicly.
The government represented by the finance ministry controls 51.41pc of Isa, and another 8.82pc is held by regional government-controlled EPM. The balance is held by local and international pension funds and institutional investors.
Compared with other Latin American national oil companies, Ecopetrol has been an early mover into energy transition and social, environmental and governance (ESG) issues, with commitments to reduce greenhouse gas emissions and flaring and improving water handling. The firm sees natural gas as a key element in its portfolio to support its green goals.
Another suitor
Ecopetrol is not Isa’s only suitor. Grupo de Energia de Bogota, one of the country’s largest conglomerates, told Colombia’s securities regulator yesterday that it is interested in participating in a potential auction for control of ISA. Another potential local buyer, EPM, declined to comment.
But Ecopetrol’s bid has advantages for the government at a time when it is looking to raise cash without losing control of key assets, two local financial analysts told Argus.
If Isa is sold through an auction under Colombian law, it would have to be offered first to minority shareholders including employees and pension funds, among others. Then, it would be put to auction through an IPO, a process that could easily take two years.
“For the country, it is still important to maintain a controlling stake in companies that are strategic for national energy security, so a majority stake in the companies (Isa and Ecopetrol) will be maintained,” mines and energy minister Diego Mesa said this morning.
Sandra Fonseca, director of Colombian big power users’ association Asoenergia, noted that Isa is an appealing business, but urged a spin-off of Isa’s grid manager XM to ensure that it “remain completely free from interference and independent from any interested party.”
In a note this morning, regional financial firm Creditcorp Capital deemed the transaction “negative all around”, noting the possibility of legal challenges by minority shareholders, controversy over Ecopetrol’s plan to bypass an IPO and corporate governance risk.
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By Patricia Garip and Diana Delgado
