Arising from the COVID 19 pandemic in Colombia, the strength of most Colombian companies has been negatively affected. To mitigate such negative effects, the Colombian government has issued multiple regulations to adjust some of the legal and financial regulations for the local economy.
The Colombian issued Decree 444 of 2020 creating the Fund for the Mitigation of Emergencies (Fondo de Mitigación de Emergencias -FOME) which will be funded with approximately 15 billion (nearly 3.75 billion dollars) pesos and has, among others, the purpose of providing financial support to private companies that conduct activities deemed in the national of the country. FOME resources will be channeled into the private sector is yet to be determined, but one alternative that could prove particularly interesting in reactivating local economy would be involving local private equity funds into the equation. In this way, local private equity funds could be the ones directly receiving part of the FOME funds and would be able to invest such resources back into Colombian companies either through debt or equity investments. Another way to use such funds could be through some of the governmental financial entities. In any case, regardless of the means used, such funds will definitively be crucial in providing financial aid to local companies.
Another regulatory initiative that could give local companies financial alternatives is the one included in Decree 560 of 2020. This Decree was issued to increase the flexibility of local insolvency and bankruptcy standards and provide financial relief for companies in distress. One of the mechanisms included in Decree 560 that could be rather interesting is the possibility of issuing special right shares and risk bonds with the purpose of capitalizing the companies’ debt. In principle, these shares or risk bonds would be subordinated to the companies remaining debt but could have certain privileges with respect to the ordinary capital. Whilst we are yet to see how this alternative will be implemented in practice, this measure, along with the other flexible alternatives proposed by Decree 560 (such as DIP financing and exit financing), will be critical in helping local companies survive the economic emergency caused by COVID 19 pandemic.
As a final note, we have seen new regulation projects intended to increase the flexibility of pension funds investment regime (mainly their investment limit in local securities). Hopefully, the creation of more flexible investment standards will go hand in hand with the emergency Decrees and will help increase the capital flow of institutional investors in respect of local securities issued by local companies as a financial alternative.