Latin America: BlackRock, I Squared circle Colombian pipeline as deadline looms

22 June 2018 - 12:00 am UTC

Ecopetrol, BlackRock, I Squared Capital and Wren House Infrastructure Management are among potential bidders for Advent International’s 22% stake in the 848km Oleoducto Central (OCENSA) pipeline.

Binding bids from interested parties are due at the end of next week, multiple sources said.

Credit Suisse and Citigroup are said to be advising Advent International on the sale of the pipeline, which is 72.75% owned by state-backed Ecopetrol. BBVA, Scotiabank and SMBC are advising the bidders, said the same sources, who did not attribute any of the banks to a specific buyer.

Spokespeople for BBVA, BlackRock, BNP, Ecopetrol, I Squared Scotiabank, SMBC and Wren House Infrastructure Management did not provide comment before publication. Advent International declined to comment.

Advent International acquired its stake in OCENSA in 2013 for a reported USD 1.1bn from Talisman Energy, Total Colombia Pipeline and Compañía Española de Petróleos (CEPSA) and Cenit, a wholly owned subsidiary of Ecopetrol. 

One of the concerns for investors would be whether they could extract returns from OCENSA, a company that is only 0.7x leveraged, a banker said. The majority owner, Ecopetrol, has a strong balance sheet and may not agree to issue more OCENSA debt. OCENSA pays out 100% of its net profit in dividends, according to Moody’s, which rates OCENSA Baa3.

The same banker said Ecopetrol would be the best buyer, consolidating the asset under subsidiary Cenit, which would itself then become a more valuable disposal candidate. The same source said there is still uncertainty surrounding potential changes in Colombia’s tariff regime.

Two other banking sources said production forecasts remain low in Colombia and that this could affect the price of the pipeline. But the first banking source said Advent International could expect to receive close to what it paid for the asset, which would be a “terrific” price. 

In Moody’s last credit opinion of OCENSA dated 24 September, analysts said: “the last tariff revision, in late 2015 and valid for the next four years, kept the prevailing tariffs unchanged… (this) supports OCENSA’s cash generation and credit metrics.”

Analyst Nymia Almeida told Inframation that investments have been falling in the oil and gas sector in Colombia because of low commodity prices. She also said Colombian oil is becoming heavier, making it more difficult to produce because heavier crude is expensive to process.

Almeida said that while there was a risk that its owners could leverage OCENSA to pay higher dividends to shareholders, Ecopetrol has plenty of cash and had no need to raise more now. The refinancing risk is very low for OCENSA, she said.

According to Almeida, OCENSA is located in an area with low guerrilla activity and the assets runs almost 100% underground, making them lower risk. The pipeline takes priority over other forms of transport such as trucks, and the government currently has no plans to build another pipeline.