Antioquia Highway Projects Get Financial Boost from Medellin-Based Isagen Sale

Medellin-based electric power producer Isagen announced January 13 that a consortium led by a subsidiary of Toronto, Canada-based Brookfield Asset Management (BAM) paid COP$6.49 trillion (US$2.2 billion) for the Colombian government’s remaining 57% stake in Isagen.

The other 43% of Isagen shares are held partly by private investors and partly by Medellin-based electric utility EPM.

With 3.03 gigawatts (GW) of power capacity, Isagen is Colombia’s third-largest power producer (behind EPM, with more than 3.3 GW capacity). Isagen boasts 2.73 GW of hydroelectric capacity and 300 megawatts (MW) of thermoelectric capacity.

The long-awaited sale had been delayed by legal challenges, nationalistic political posturing by several political parties, union job-loss paranoia, public demonstrations, heavy social-media sarcasm and minimum-price-bid changes — the latter the result of a huge decline in the value of the Colombia peso versus the U.S. dollar over the past year.

The legal battles and price changes in recent months had prompted all other bidders except BAM to drop-out of the Isagen share bidding.

According to a press release issued by Colombia President Juan Manuel Santos, the new funds raised by the sale of the government’s stake in Isagen will help pay for some 25 “generation four” (4G) highway construction projects in Colombia, including crucial, new divided-highway sections between Medellin’s outlying suburbs of Barbosa and Cisneros.

This new divided highway will connect Medellin to Puerto Berrio (adjacent to the Magdalena river), enabling a huge reduction in travel times — especially for freight transport, thus benefitting the entire economy of Antioquia.

The Isagen sale to Brookfield “will give greater impetus to the [Colombian] economy through infrastructure construction, which is a correct policy in times of financial constraints,” added Colombia Transport Minister Natalia Abello Vives.

Some nine “4G” highway construction projects – mainly private-financed – will benefit from additional National Development Finance (FDN) funding thanks to the Isagen sale, including projects in Antioquia, Meta, Guajira, Cesar, Caldas, Cundinamarca, Huila, Tolima and Bolívar, Abello added.

A consortium led by BAM subsidiary Brookfield Renewable Energy Partners L.P. and its institutional partners will be the titular owners of the 57.6% equity share in Isagen, according to BAM.

Besides the existing 3.03-GW of power capacity, Isagen also has a 3.8-GW development portfolio in Colombia, according to BAM.

The Isagen stock purchase – expected to close on January 26, 2016 – “reflects a purchase price of COP$4,130 per share (approximately US$1.38),” according to BAM.

“Brookfield Renewable’s equity commitment will be approximately US$243 million giving it an approximate 9% interest in Isagen. Brookfield Renewable currently has US$1.2 billion of available liquidity and will fund its commitment with available resources.

“The Brookfield-led consortium is also required to conduct two tender offers with respect to the remaining outstanding shares of Isagen.

“Assuming all remaining Isagen shares are sold to the Brookfield-led consortium pursuant to these tender offers, Brookfield Renewable’s additional equity commitment would approximate COP$1.55 trillion (approximately US$517 million), which it would fund with a committed $500 million acquisition facility and existing liquidity, giving it an approximate 25% interest in Isagen.”

Brookfield Renewable CEO Sachin Shah added: “We are extremely pleased to grow our business in Colombia, an attractive market with strong long-term growth fundamentals, a highly skilled labor force and continued need for new investment. This transaction aligns with our objective of building our global renewable energy business with high quality, predominantly hydro [electric] assets”

According to BAM, Isagen is attractive in part because of its “strong, stable cash flows.” The company has delivered “consistent operating results over the last 20 years and is well positioned to participate in the country’s growth.

“Approximately 80% of Isagen’s energy sales are derived from contracts with a broad base of large commercial and industrial customers and distribution companies. In addition, Isagen benefits from a fixed stream of reliability and capacity payments.”

Isagen also enjoys a “strong operating track record,” according to BAM. “Isagen has high-quality and modern generating facilities with an average facility age of 18 years. The company’s management team and employees possess extensive experience in operating electricity businesses and a comprehensive knowledge of the Colombian energy market.”

What’s more, “Colombia is one of the strongest and most stable economies in South America with a population of  approximately 48 million, nominal GDP of US$380 billion and projected GDP  growth of approximately 4% annually,” according to BAM.

“Hydroelectricity is integral to the country’s supply mix, accounting for 70% of installed capacity, with higher-priced natural gas and coal accounting for most of the remainder.

“Despite uninterrupted power demand growth since 2000, the country’s per-capita electricity consumption is still below the South American average, representing attractive growth potential,” according to BAM.  

The Brookfield Renewable Energy Partners portfolio consists of hydroelectric and wind-power facilities in North America, South America and Europe, and totals more than 7 gigawatts of installed capacity, according to the company.