Colombia seeks $1 billion Ecopetrol dividend, amid massive civil unrest

By Andrea Jaramillo on 12/1/2019

BOGOTA (Bloomberg) - Colombia is seeking an additional payout of almost $1 billion from its oil company Ecopetrol S.A. as it faces increased spending pressure amid massive anti-government demonstrations.

The finance ministry called a meeting of shareholders to discuss its proposal for the company to distribute 3.7 trillion pesos ($1.1 billion) in a special dividend. Since the Colombian state owns 88.5% of the company, it can win any vote, and its share of the payment would total about $920 million.

President Ivan Duque this week pledged tax breaks for the poorest fifth of the population as part of a tax bill that is currently being discussed by lawmakers. The reform, which would replace a law overturned by a high court in Oct., needs to be approved by year-end in order for changes including corporate tax cuts to remain in place.

At the same time, the government is trying to curb borrowing to hit its fiscal targets and defend the nation’s investment grade credit rating. The nation is on track to meet a fiscal target of 2.4% of gross domestic product this year, but next year is an open question, according to Alejandro Reyes, senior economist at BBVA’s Colombia unit.

“What the government has offered protesters has a fiscal cost,” Reyes said. “These funds from Ecopetrol are an insurance for what may happen next year. If the tax bill doesn’t pass or the government can’t sell state assets, it won’t find itself against the wall.”

The cash for the dividend will come from Ecopetrol’s occasional reserve, and won’t affect its financial sustainability, the finance ministry said in a statement on Thursday.

Ecopetrol shares jumped 1.4% to 3,265 pesos in Bogota trading, their highest level since April. The payout would be equivalent to 89 pesos per share, the company said.

“Ecopetrol has the financial capacity to make the payment,” given its strong balance sheet and cash flows, according to German Cristancho, head analyst at Corredores Davivienda brokerage.

Citigroup said in a report that while they welcome the extraordinary dividend proposal, given Ecopetrol’s recent acquisitions in the U.S., Brazil and Colombia, the company might be near its leverage target.

The finance ministry said it will use the funds for investment. The payment wouldn’t be an advance on the regular 2020 dividend, the ministry said.

The payout would be scheduled for Dec. 23 for minority shareholders and Dec. 26 for the government.

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