The Asian company will be the main player in the market, in an operation that reflects the interest of companies from that country in Chile, where they already have a significant presence in areas such as mining, food, wine and energy.
By Tomás Vergara P.
Source: El Mercurio – November 14, 2020
The presence of Chinese firms in Chile continues to increase, especially in the energy sector. This, after yesterday’s announcement of a new large investment by a company from that country, the state-owned State Grid, which agreed with Spain’s Naturgy to purchase a 96% stake in the distribution company CGE in exchange for 2.75 billion euros (some US$ 3.04 billion).
It is the energy distribution company with the largest number of customers in the country, with almost 3 million (between residential and regulated commercial), and with a significant presence in the energy transmission sector.
As for the buyer, State Grid, last year it had closed its entry into the distribution market after acquiring Chilquinta for more than US$ 2.2 billion, so that when the transaction with Naturgy closes, after the corresponding authorizations, it will dominate the industry with 57% of the customers throughout the country.
In this way, the firms of the Asian giant take possession in a strategic industry such as the electricity industry, since this purchase and that of Chilquinta are added to the participation of the also Asian China Southern Power Grid in Transelec (20%). Other examples in other sectors, such as mining, are the acquisition of 24% of SQM shares by Tianqi, or in salmon farming, where Joyvio acquired Australis. The reasons for the sale, according to Naturgy, are due to the company’s strategy of rotating its portfolio to focus on “stable countries” with “strong currencies”, such as the euro, the dollar or the pound sterling.
In addition to the above, the debt levels of the parent company, the Hispanic firm, which reported that the transaction will reduce 10.8 billion, thanks to the deconsolidation of CGE’s debt and the cash proceeds from the transaction.
However, in its short stay of less than five years in the ownership of CGE, Naturgy has faced problems such as the lawsuit against the executives for their alleged responsibility in the forest fires or the recent controversy with generators for lower payments to the latter due to the drop in the collection of household customers’ bills.
“Our investment in assets, as we have said before, should be guided by the search for predictability, be focused on projects that add to the energy transition and in geographies and regulatory frameworks with greater stability,” said Naturgy’s chairman, Francisco Reynés.
As the Iberian company disclosed to the regulator, the closing of the transaction is subject to the relevant regulatory approvals, the approval of the antitrust authorities and the sale to NII Agencia or a related company of CGE’s stake in its subsidiary CGE Argentina.
In this line, they aimed to complete the deal before the end of February 2021. In this transaction, Naturgy received exclusive financial advice from Banchile Citi.
New Sales
Along with the exit of CGE, Reynés left the door open to divest another of its assets in Chile, which is Metrogas, where it has a stake of just over 60%. The other partner, Empresas Copec, is in the process of divesting.
In a conference with analysts, the top executive of the Spanish company said that the strategy of rotating assets “is just beginning”, so this will not be the only disposal.
“We will work in the future on other transactions, because our strategy is to rotate assets, but we have not set a specific time, the worst thing we can do if we want to create value, is to sell fast.”
However, the announcement had a significant effect on the value of CGE shares, which closed yesterday on the Santiago Stock Exchange with an increase of 137% to $992, with more than $375 million traded.
Naturgy shares rose 7.7% on the Madrid Stock Exchange, trading at 19.68 euros each.
The high figures of the operation
Although the transaction announced for 96% of CGE’s shares was in exchange for US$ 3 billion, the complete operation considers an asset valuation of more than US$ 5.1 billion, adding capital and debt, since State Grid will assume the liabilities currently held by CGE.
These figures attracted the attention of the market, and it is a price that can only be offered by firms from the Asian giant.
“I think the multiple at which CGE’s assets are being sold is very high (more than 15 Ebitda) and it certainly seems a better deal for the seller than for the buyer. From a purely market point of view, the multiples paid by State Grid seem very difficult to justify,” said the analyst at Mediobanca, an Italian investment bank.
For his part, Systep’s general manager, Rodrigo Jiménez, pointed out that one of the reasons that could explain this valuation, beyond high profitability, is that Chile is the company’s showcase for the American continent, in addition to the possible synergies that can be achieved hand in hand with Chilquinta.
However, the expert pointed out that “the most striking thing is that this company was interested in CGE and before that in Chilquinta, in a period when we are discussing important regulatory changes. The great challenges for State Grid and the companies in the sector is that today the first value added distribution study is being carried out under the new modality, while at the same time the entire distribution reform is being discussed. This is a new process, with a new rate, so it is expected that the specific distribution tariffs should go down or at least be maintained under this new modality”.
