On June 4th, 2020, the Government issued Decree 811 (the “Decree”), which contains measures related to the investment in, and disposal of, State-owned shares, in the context of Economic, Social and Ecologic Emergency State. This is an important Decree that, to a substantial degree, introduces flexibility in the regime applicable to the sales of State-owned shares contained in Law 226 of 1955 (“Law 226”).
The Decree is divided in two Chapters. The first Chapter contains the measures applicable to the acquisition and subsequent sale by the Colombian Government of equity instruments, in order to mitigate the adverse economic effects that prompted the issuance of a second Decree declaring a State of Emergency. It is, then, a set of rules for the Government to invest in companies to preserve the corporate enterprise, and then dispose of such investment. According to its recitals, the Decree assumes that, in these instances, there is no privatization (as the term has been interpreted by the Colombian Constitutional Court), but rather a set of measures to face the economic emergency. Thus, Chapter I excludes these sales of shares from the democratization process set forth in Law 226 (which governs privatizations). What are, then, the most relevant aspects of this exceptional regime? Its main characteristics are summarized as follows:
- There are two rules particularly applicable at the investment stage:
o The legal regime (private or public law) applicable to companies receiving Government investment does not change, regardless of the shareholding percentage acquired by the Government. This does not alter the functions of the Comptroller's Office.
o The Decree provides the Government with exit options that are usually agreed upon in certain types of investments. Thus, the Nation may require the shareholders of the companies that receive its investment to commit to acquire the Government 's shares within a determined period of time, or to put their shares up for sale, together with those of the Government, so that a controlling package may be transferred. In other words, shareholders who want their company to receive Government investment may be required to grant put options or drag along rights to the Government. These shareholders must also secure these commitments. The Decree, however, does not specify the mechanisms by which this security may be implemented.
- The transaction described in the Decree (investment in, and disposal of, interests), and the contracting of services required to conduct each transaction, are governed by private law. However, the disposal of the State-owned shares (1) requires the issuance of a “sale program” by the Government, and (2) must be conducted using mechanisms that provide conditions of wide publicity and free competition.
- When the disposal of the shares is carried out, if the recipient of the investment is an entity that provides a s public utility service, measures must be taken to ensure the continuity of the provision of the service.
Chapter II, on the other hand, contains provisions governing the sale of the Government 's shares in listed companies to obtain the necessary resources to face the effects related to the Economic, Social and Ecologic Emergency State. These sales are privatizations. What makes them special is the use of proceeds. To that extent, what this Chapter does is setting forth a special regime for the democratization of State-owned shares that seeks to expedite the sale process in certain cases. In any case, since the sale is a privatization, matters not covered by the Decree remain governed by Law 226. The most relevant aspects of this special regime are the following:
The special provisions of the Decree apply only to the sale of shares in companies listed on the stock exchange.
The obligation to determine a minimum price according to valuation studies (applicable in “normal” Law 226 sales) is eliminated. The Government may set a minimum price but is not required to do so. And if it chooses to do so, the set price may remain confidential.
To determine the sale price of the shares, the Government may use price-building mechanisms in accordance with international practices (such as book building processes), eliminating the technical valuation requirement of Law 226. In any case and in accordance to the National Government’s support to the capital market, they can sell for market values determined in the corresponding auction or competitive process (martillo), which must comply with the procedures of the BVC and the norms established by the Superintendence of Finance.
As for the recipients of the special conditions listed in Law 226, commonly referred to as the " solidarity sector ", they may be offered the shares simultaneously with the general public. Thus, the previous and exclusive offer addressed to the solidarity sector provided for by Law 226 is dispensed with.
Finally, the special conditions for the solidarity sector take two forms: (1) the offered shares are allocated to the solidarity sector first, so all other investors may only acquire the remaining shares, and (2) the program can set preferred conditions of price or payment terms.