Ecopetrol bids for ISA, eyes LatAm power expansion

Colombian state oil company Ecopetrol said on Wednesday that it submitted a non-binding offer to acquire the government's majority stake in power transmission firm Interconexión Eléctrica (ISA). 

The move is in line with Ecopetrol's strategy to diversify its asset portfolio with a growing focus on non-conventional renewable energy and digitization, the Bogotá-based firm said in a statement. 

"The investment in ISA would represent a transformational step in the positioning of the Ecopetrol Group to lead this energy transition and advance in decarbonization," the statement read. 

"The transaction has great potential to generate value thanks to the growing demand for energy and the incorporation of new renewable sources that need to be connected with end users, as well as the expected increase in electrification. These conditions not only apply to Colombia, but to all of Latin America."

The government is selling its 51.4% interest in ISA as part of efforts to balance its budget amid soaring public spending to address the coronavirus pandemic. The deal could fetch more than US$4bn, according to market observers.

Economists have warmed that Colombia must reduce its fiscal deficit – estimated by Corficolombiana at 90tn pesos (US$25bn) – to maintain its investment grade rating. 

Ecopetrol said it planned to finance the transaction through the issuance of shares, existing cash and the sale of non-strategic assets. 

"The transaction would be carried out through an inter-administrative contract between Ecopetrol and the finance ministry," the company said. "To make this investment, it is not necessary to hold a public acquisition offer (OPA) for ISA shareholders because the nation would continue to be the real beneficiary of ISA's shares and would maintain ultimate control over them."

Bancolombia and HSBC have been hired to help structure and coordinate the proposed operation, Ecopetrol said. 

Medellín-based ISA operates 45,142km of high-voltage power lines, 907km of highways and 49,500km of fiber optic networks in Colombia, Brazil, Chile, Peru, Bolivia, Argentina and Central America.

The government aborted a planned sale of its stake in the company in 2019 amid tepid investor interest.

Earlier this month, Grupo Energía Bogotá (GEB) raised the prospect of bidding for ISA's available shares, while Empresas Públicas de Medellín (EPM) has also been touted as a possible buyer. EPM already holds an 8.8% stake in ISA.