Colombia’s State-Controlled Ecopetrol Bids for Electrical Transmission Giant

RIO DE JANEIRO, BRAZIL – 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 51% of the shares in circulation, the company said this morning.

The value of the proposed transaction was not disclosed. 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 US$4 billion, according to Juan Fernando Pelaez a trader at the Medellin-based brokerage Valora Analitik.

The deal would complement Ecopetrol’s existing oil-focused business and offer more geographic diversity, Ecopetrol said.

The Colombian state would continue to control the overall energy enterprise through its ownership of “at least” 80% of Ecopetrol, the company said, hinting at a possible sale of part of the state’s 88.49% stake.

“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 oil prices,” the company said.

The transaction would be carried out through an “inter-administrative contract” with Colombia’s finance ministry, and would be financed through a new Ecopetrol share issuance, internal resources and divestments of non-strategic assets, Ecopetrol 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 large portion of the company is traded publicly.

The federal government controls 51.41% of Isa, and another 8.82% 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 goal.

Another suitor

Ecopetrol is not Isa’s only suitor. Grupo de Energia de Bogotá, 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.

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 initial public offering (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 in a press conference.

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.”

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