Ecopetrol Seeks To Purchase Control of ISA From Colombian Government

Today, Colombia’s state-controlled petroleum company Ecopetrol (NYSE: EC) has revealed that it seeks to take a controlling interest in Interconectado Eléctrica S.A. (ISA) by purchasing the 51.4% owned by Colombia’s Ministry of Finance & Public Credit (Minhacienda).

ISA is an international electrical grid operator with positions in the electrical infrsastructure throughout the Andes, including Argentina, Brazil, Bolivia, Chile, Peru, several Central American countries as well as Colombia. In addition to the electrical grid and transmission, ISA provides fiber optics and telecommunications services through its Internexa subsidiary, and operates highway concessions in Chile.

Through the offer and other recent investments in renewable energy, Ecopetrol seeks to diversify away from a pure-play petroleum company. While Colombia is a petroleum exporter, already approximately 80% of domestic electricity is produced via hydroelectric generation. Ecopetrol has traditionally been an upstream and midstream petroleum company with international investments, domestic and offshore oil & gas fields, and two massive refineries in Cartagena and Barrancabermeja, Colombia.

Analysis: The fact that Ecopetrol has gone public with its intentions indicates the near certainty that a deal has been agreed upon in advance within Colombia’s government. It also reveals an intention of the Colombian government to raise cash without further direct indebtedness, by selling one government asset to another, with the acquiring asset raising money in a way that does not affect government credit ratings. Remember that this comes a year after the government pulled $1 billion USD out of Ecopetrol through a special dividend.

“This decision responds to the Ecopetrol Group’s strategy that seeks to strengthen its leadership in the hydrocarbon chain in the American continent, while accelerating its energy transition with an ambitious plan to reduce emissions, grow in renewable sources, and increase gas production. and participation in other energy fields, including transmission, all leveraged on digital transformation and technological convergence,” said the company in a written statement.

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) or tender offer to ISA shareholders, to the extent that the government of Colombia would continue to be the real beneficiary of ISA’s shares and would maintain ultimate control over them.

The transaction would be financed through the issuance of new Ecopetrol shares, equity and other available financing schemes, including the divestment of non-strategic assets. This new issue, if completed, would be the largest in the history of Colombia. The financial structuring of the operation would maintain a level of Ecopetrol indebtedness aligned with its investment grade.

“This acquisition would mean a milestone in Ecopetrol’s history that would strengthen us in the national and international energy sector and allow us to accelerate the energy transition in which we are committed. It would be the birth of a stronger, more resilient conglomerate with a greater capacity to grow in the new era of clean energy,” said Felipe Bayón, president of Ecopetrol.

The investment banking divisions of HSBC and Bancolombia are assisting Ecopetrol in the acquisition effort.