Colombia, January 27, 2021 – Ecopetrol S.A. (Ecopetrol, Baa3 stable) announced the acquisition of 51.4% of the capital of Interconexion Electrica S.A. E.S.P. (ISA, Baa2 stable). ISA is a publicly traded power company owned by the Government of Colombia (Baa2 negative). The transaction is credit positive for Ecopetrol because ISA generates a more stable EBITDA compared to that of Ecopetrol’s oil and gas commodity business, which increases cash flow visibility for Ecopetrol. Also, ISA operates in Colombia, Brazil, Peru and Chile, which reduces Ecopetrol’s geographic concentration risk; and Ecopetrol’s capital structure will not materially change after the completion of the acquisition transaction.
The acquisition of the controlling stake at ISA may cost approximately $4 billion. Because ISA is publicly traded, the acquisition amount should be based on market prices and on standard valuation practices, despite the Colombian government currently controlling Ecopetrol’s and ISA’s capital.
Ecopetrol’s plans to sell shares and assets as well as raise debt to fund the acquisition of ISA. The company expects that the combination of such initiatives will not deteriorate its credit metrics materially. We estimate that Ecopetrol’s debt/EBITDA ratio was around 3 times at year-end 2020 and that this credit metric will remain relatively stable in the next few years, pro-forma for the consolidation of ISA. Our estimate is based on an average Brent oil price of $45 per barrel (dpb) in 2021 and 50 dpb in the medium term.
We understand that after completion of the transaction, ISA will contribute with 15-20% of Ecopetrol’s consolidated EBITDA. We assume that the companies’ business strategies will not change materially and that their respective management teams, dividend policies and capital investment plans will remain mostly unchanged.
Ecopetrol is the largest integrated oil and gas company in Colombia. Ecopetrol has three business segments, namely exploration and production, refining activities and transportation and logistics. Its production averaged around 639,000 barrels of oil equivalent per day, net of royalties, in the 12 months that ended September 2020, and total assets amounted to $43 billion in September 2020. The Colombian government owns 88.5% of the company’s capital and the balance has been traded on the Colombian Securities Exchange since November 2007.
ISA, headquartered in Medellin, Colombia, is an operating holding company with businesses in the electricity transmission, toll roads, telecommunications, and systems management sectors. The company holds direct and indirect ownership stakes in a portfolio of subsidiaries located in Colombia, Brazil, Peru and Chile.
Credit Outlook: 1 February 2021. Pg. 5
Moodys
Atlantic Investors Service 