Colombia’s decision to shelve Isagen sale sparks questions
Government will need to consider a number of options in order to raise funds to finance an ambitious road-building program
The Colombian finance ministry's decision to postpone the
COP5trn ($2.7bn) privatization of power company Isagen has
raised questions about how the government will secure financing
for an ambitious road-building program.
The government renewed plans in July 2013 to privatize its
57.66% stake in the electricity generator, saying the money
raised would help pay for much-needed infrastructure
Colombian President Juan Manuel Santos
(Ministerio TIC Colombia)
Cash from the sale was earmarked for investment alongside
the private sector in Colombia's $24bn highway concession
program, dubbed fourth-generation, or 4G. Analysts said the
government of Juan Manuel Santos will now have to consider
different options in order to meet financing needs for
"The issue now is how to finance the
4G projects, and the post-conflict spending," said Alberto
Bernal, head of macroeconomic strategy at Bulltick Capital
Markets. That suggested the sovereign may look at tapping debt
markets to cover the gap - or trim spending in other ways, he
Credicorp said the Santos government may try to pass a
structural tax reform and also pointed to market speculation
suggesting Colombia may decide to sell a stake in
"In absence of a schedule to raise alternative resources to
finance infrastructure projects, we do not rule out some
volatility in the TES market in the short term, thus adding
another factor to the current negative sentiment of local
investors," Credicorp said in a note.
The decision to delay comes after some of the early
enthusiasm in the privatization - seven bidders from around the
globe initially signaled their interest - had dissipated.
Cemig, which was to bid with local firm Empresas Publicas de
Medellin, pulled out, saying the economics did not stack up.
And Duke Energy president and CEO Lynn Good told investors last
week the firm had withdrawn from the bidding process.
Additionally, political debate around the sale and lawsuits
against the deal - including one that temporarily halted the
March - had increased the probability that the government
would postpone the privatization, said Edgar Romero Garcia,
head of equity at Corredores Associados in Bogota.
The decision may also contribute to a depreciation of the
Colombian peso, Credicorp said, because the market had expected
an influx of dollars into the local FX market.