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Colombia’s decision to shelve Isagen sale sparks questions

Aug 13, 2014

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 development.
     
     
    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 2015.

"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 said.

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 Ecopetrol.

"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 And Duke Energy president and CEO Lynn Good told investors last week the firm had withdrawn from the bidding process.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 process in 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.



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