Colombian power company Colinversiones SA is exploring international expansion options even as it sees plenty of potential in the local market.
“Prudence teaches you not to neglect the present because we are looking at the future,” Juan Guillermo Londono, the company’s chief executive, told Dow Jones Newswires. “So we will first focus on consolidating what we just bought though we have already looked at alternatives from Mexico south.”
Colinversiones’ most recent deal in the local market was the $1.1 billion acquisition of a major stake in generation company Empresa del Pacifico SA (EPSA.BO) from Spain’s Gas Natural SA (GAS.MC) and a group of minority holders. Colinversiones took a 49% stake in EPSA and also brought in some minority investors, whom Londono said it may eventually buy out.
Colinversiones probably won’t have to turn to debt markets to finance its part of the purchase, which was worth about $756 million, Londono said.
The next step for Colinversiones might well be a bid for the government’s controlling share in power company Isagen SA (ISAGEN.BO), which will be put on sale in coming months. “We would go with a partner, though,” Londono said. The government has said the 57% stake in Isagen is worth at least COP3 trillion.
Colinversiones has come a long way since it made the decision in 2006 to focus specifically on power generation, based on separate recommendations by two investment banks, Citigroup and BNP Paribas.
The firm began selling off assets in such industries as hotels, tobacco and wood pulp; today, it has shrunk the portfolio to controlling stakes in a few hotels in the cities of Medellin and Pereira, and minority stakes in financial companies, including Suramericana.
In the meantime, its power industry purchases have turned it into the fourth-largest electric power generator in the country.
“The [power] industry is divided into several players with a market share smaller than 25%, the government regulations guarantee returns on investment, [and] the know-how and technology were available in Colombia,” he said. “We had a full list of advantages.”
Additionally, rainy and mountainous Colombia is a great place to build hydroelectric power plants that generate cheap electricity, and the country is close to markets that lack energy sources, such as Central America, which has to import oil for its power plants.
On top of that, Colombia is one of the few countries in the region that offers legal stability for investors to undertake long-term investment projects, such as building power plants, Londono said.
Colombia already exports small amounts of electricity to Ecuador and Venezuela, and the interconnection with Panama and the rest of Central America is under way.
Johanna Castro, a market analyst with local brokerage Corredores Asociados, said the electricity industry is clearly a winner, as it will grow through exports and rising demand from heavy industry.
As Colinversiones grows, its shares have outperformed the local stock market. The shares have gained 120% so far this year, while the benchmark IGBC index is up 43%.
After such a price increase, Castro doesn’t recommend buying the firm’s shares. In the longer run, however, Colinversiones will certainly deliver hefty returns, she said. (Inti Landauro / Dow Jones)