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    [NGW Magazine] Canadian fund expands LatAm base


Canadian fund manager Brookfield has agreed to buy another LatAm gas infrastructure business for over half a billion dollars, following its recent $5bn acquisition from Petrobras.

by: Mark Smedley

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Premium, NGW Magazine Articles, Volume 2, Issue 23, Corporate, Investments, Infrastructure, Pipelines, News By Country, Canada, Colombia, Peru, Spain

[NGW Magazine] Canadian fund expands LatAm base

Spanish utility Gas Natural announced November 18 it had agreed to divest its Colombian gas distribution and retail supply asset for €482mn ($575mn) to Canadian fund manager Brookfield, implying a value for the whole business of about €1bn. GN chief executive Rafael Villaseca noted: “The sale is taking place at a time in which international investment funds are particularly interested in these types of assets.” 

Brookfield in April 2017 completed its acquisition of Petrobras’ gas distribution business in Brazil, a 90% interest in Nova Transportadora do Sudeste for $5.08bn – of which $4.23bn already paid, and $850mn to be paid in 2022. That sale hit a brief glitch when a court suspended it during February.

Once completed, GN estimates it will have a post-tax positive impact on its 2017 results of about €350mn.  Since it acquired the asset in 1997, GN said the client base has increased from 400,000 to almost 3 million, and its distribution network has grown from 5,000 km to over 22,000 km. Minority shareholders would also be allowed to benefit from the same offer from Brookfield, if they wish to sell.

GN asserted that its decision to divest “does not affect the group’s wish to maintain an open dialogue with Colombian authorities regarding its subsidiary Electricaribe.” CEO Villaseca however acknowledged that the agreed sale to Brookfield “comes within the process of reviewing assets included [for divestment under GN’s] Strategic Plan.”

Colombian authorities temporarily took over GN’s 85.38%-owned Electricaribe in November 2016, making that permanent through a March 14 2017 decision by the country’s utilities regulator. 

GN in March admitted that Electricaribe had suffered from “chronic situation of fraud and non-payments for many years totaling €1.3bn” but launched arbitration proceedings at Uncitral, the UN arbitration tribunal, against Colombia to recover control of the asset, or else win damages. The Colombian regulator had said in March its intention was to find a new operator for the business, and that there was little likelihood of compensation for GN. 

GN however said November 18, whilst it wishes to maintain an open dialogue with the Colombian authorities to avoid arbitration proceedings, that “once the Colombian authorities have had one year to experience first-hand the realities of the electricity supply to the Caribbean coast, GN is insisting for the authorities to revoke the intervention measure.” GN added it was redoubling its efforts to reach “an agreed, satisfactory and above all, sustainable solution for the provision of the electricity service in the area to Electricaribe clients, employees, creditors and shareholders.” Electricaribe supplies over 2.5mn customers in the coastal area of Colombia and has a distribution network of 54,000 km; it is also an energy supplier. 

Brookfield meanwhile has had a presence in South American utility assets for over a decade: in Chile since 2006 when it acquired Transelec, the country’s largest electricity transmission system, and in Colombia since 2011 when it acquired a similar business before buying Isagen, a leading Colombian power generator, in 2016. The deals in Brazil and now Colombia scale up that operation. 

It’s been reported that two Asian sovereign wealth funds, China-based CIC Capital and Singapore-based GIC Private, will farm into Brookfield’s $5.08bn acquisition from Petrobras. Globally, Toronto and NY-listed Brookfield has over $250bn of assets under its management.

Brookfield had been seen late last year as a potential white knight to buy out troubled Brazilian contractor Odebrecht’s 5% interest in a Peruvian gas transportation asset, Gasoducto Sur Peruano. That would have benefited GsP’s two other shareholders, Spain’s Enagas and local Peruvian contractor Grana y Montero. In the end, the deal could not be completed ahead of a financing ultimatum set by the government of Peru; the latter terminated the concession on January 23 2017 collecting a $262.5mn non-performance penalty from the Odebrecht-led GSP consortium (Enagas stake 25%).

Spanish gas grid operator Enagas said mid-October it is in negotiations with Peru’s government to assert its rights.