Petroleum Intelligence Weekly, Energy Intelligence Group | 10/9/2008 12:00:00 AM
Ecopetrol Makes Wall Street Debut
Oct 9 -- Colombia's state Ecopetrol has made its US stock market debut at what looks like a most inopportune time, with oil prices weakening and financial market turmoil turning investors away from risky emerging market equities.
A 10.1% stake in Ecopetrol was floated on the Bogota stock market in an initial public offering (IPO) last November, transforming it from a 100% state-owned to a partially privatized oil company in the vein of Brazil's Petrobras and paving the way for an international stock listing (PIW Oct.1'07,p6). Although the financial outlook has deteriorated since then, Ecopetrol's share price has remained steady at around 2,600 pesos ($1.22) -- a price too high for many US investors. "If the stock has a correction given the bearish market, we could see more demand from the US," says one trader in Bogota, noting that Ecopetrol's stock has risen 29% this year while Petrobras' has fallen. Demand may also have been hurt by capital controls on foreign investment, enacted in May to stop the Colombian peso's appreciation, but removed on Sep. 1.
Despite the current market difficulties, Ecopetrol sees long-term benefits from the New York listing. The company will gain a higher profile in the international investment community, as well as gain greater corporate governance credibility thanks to the strict reporting requirements of the US Securities & Exchange Commission (SEC). Ecopetrol will have to file detailed financial and operational accounts with the SEC and comply with US Generally Accepted Accounting Principles. This will ultimately boost investor confidence in the company, enabling Ecopetrol to more easily access international debt markets offering more competitive interest rates than the domestic Colombian market and allowing it to make acquisitions using its own shares rather than cash. Colombia's credit rating, one notch below investment grade, could weigh on ratings for Ecopetrol's debt, making the New York listing essential. In the long run, a higher international profile for Ecopetrol could also attract new investors to Colombia's budding stock market. Ecopetrol currently dominates the Bogota bourse, accounting for 45% of the exchange's value.
Ecopetrol is authorized to sell up to 20% of its equity on the Bogota stock market, but currently has a sound financial position and no need for additional capital. Another share issue is not expected before late 2009. With zero debt and a $3.19 billion net profit in the first half of 2008 -- up 177% year-on-year -- Ecopetrol has more than enough capital to fund its domestic and international operations. The company raised $2.8 billion from last year's IPO, but the Colombian market is considered too small to absorb another large share offer so soon. Ecopetrol may, however, issue more equity or debt in the next few years to finance new projects and to help cover its planned overall 2008-15 spending of $60 billion.
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