Ecopetrol Unveils US$3.8 Billion Bid for 51% of Medellin-Based Electric Power Giant ISA

Colombia’s mostly state-owned Ecopetrol oil company announced January 27 that it’s making a bid worth an estimated US$3.8 billion for the Colombian government’s existing 51% share stake in Medellin-based multinational electric power transmission giant ISA.

The bid, if successful, would help boost Colombia’s government finances because Ecopetrol soon would sell more of its stock — along with “non-strategic” assets — to pay for the government’s 51% share of ISA.

Bottom line: the proposed deal would take money from private investors and transfer it into Colombia’s Treasury Ministry — helping to reduce billions of dollars of new debt arising from massive government subsidies to help citizens and companies overcome huge losses from the Covid-19 crisis.

ISA would still remain 51% government-owned, but the government stake in Ecopetrol would be diluted to around 80%, from nearly 90% currently.

The deal simultaneously would help Ecopetrol prepare for the world-wide transition away from fossil hydrocarbons and reposition it to supply more “green” electric power along with non-polluting electric vehicles. Ecopetrol is already building new solar-power production farms here in Antioquia and elsewhere in Colombia.

“The investment in ISA would represent a transformational step for Ecopetrol in its energy transition and decarbonization path,” according to Ecopetrol’s press statement.

“Ecopetrol would be strengthened with world-class energy infrastructure assets that would generate a material stream of income in low-emission businesses.

“ISA is a leader in the continent with significant positions in the transmission of electricity in Colombia, Brazil, Chile and Peru, among other countries. It stands out for its outstanding financial and operating results, and a robust growth plan that Ecopetrol would maintain.

“The [combined] operation would contribute to the economic reactivation of the country and would represent an opportunity for shareholders by having a unique energy conglomerate in America, with greater capacity to generate value from the complementarity of its businesses and geographic presence.

“The resilience of [Ecopetrol] Group would be strengthened by having a greater portion of stable and predictable income in the long term, while reducing exposure to oil price volatility. The nation would maintain control of both companies through the participation of at least 80% in Ecopetrol.

“The transaction would be financed with a scheme that includes a new capitalization of Ecopetrol through the issuance of shares, equity and other available financing schemes, including the divestment of non-strategic assets. The financial structuring of the operation would maintain a level of Ecopetrol indebtedness aligned with its investment grade.

“The transaction would be carried out through an inter-administrative contract between Ecopetrol and the Ministry of Finance and Public Credit. To make this investment, it is not necessary to make a Public Acquisition Offer (OPA) to ISA shareholders, to the extent that the nation would continue to be the real beneficiary of ISA’s shares and would maintain ultimate control over them.

“If an agreement is reached between the parties (Ministry of Finance and Public Credit and Ecopetrol), the closing of this transaction will be subject to the performance of a detailed due diligence, as well as the issuance and placement of shares by Ecopetrol, prior obtaining the required authorizations,” the company added.

While Ecopetrol potentially could have the upper hand in the proposed deal, other potential buyers include Bogota’s GEB power company.