Italy’s Enel buys Brazil’s Celg-D for $647 million

Industry: Energy 2016-12-01

Italy’s biggest utility Enel bought Brazilian power distribution company Celg-D from the state-run power holding company Eletrobras on Wednesday, as it presses ahead with plans to expand in Latin America.

Enel SpA (ENEI.MI), which won the Goias state power distributor in an auction with a bid of 2.18 billion reais ($647 million), is banking on Latin America to support its future growth.

For Brazil’s debt-strapped Centrais Elétricas Brasileiras SA, or Eletrobras (ELET6.SA), the sale of Celg-D is the first major step in a plan to sell off its loss-making distribution division to pay down debt.

Enel already owns generation and distribution assets in Brazil and is the biggest private energy player in South America, present in 5 countries.

It generates 25 percent of its core earnings in the region, most of that from green energy and networks and aims to invest 36 percent of its capital expenditure in Latin America with a sharp focus on smart grids.

“We are very happy to be selected by Brazilian authorities for the purchase of such an important distribution company,” said Enel CEO and General Manager Francesco Starace. “Goias is an excellent market.”

Eletrobras plans to sell six other power distribution companies by the end of 2017. Shares of the company jumped more than 2 percent in early trading in Sao Paulo but then gave up most of the gains to trade flat with Tuesday’s close.

Enel, which already has a strong presence in the Brazilian market with operations in power generation, transmission and distribution, was the only company to bid in the blind auction. Its offer was 28 percent above the government’s minimum asking price.

“We are glad to start the process of selling the power distribution companies with this success,” Eletrobras Chief Executive Wilson Ferreira Jr. told reporters after the auction at Sao Paulo’s BM&FBovespa exchange.

Eletrobras will receive 1.06 billion reais from the deal with the rest going to the state of Goias, which is the minority shareholder.

Celg-D is considered by power sector analysts as the most attractive asset in Eletrobras’ distribution stable since it serves the agricultural-rich center-west region, where economic growth has been above the rest of the country.

Enel, Europe’s biggest utility in terms of capacity, is shifting its focus away from traditional generation to grids, renewable energy, and retail business, especially in emerging markets.

Carlo Zorzoli, a director for Enel Brasil, the local subsidiary of the Italian power firm, said the company’s growth plans in Brazil go beyond the acquisition of Celg-D.

Enel aims to sell 3 billion euros of assets in the next three years while reinvesting up to 4.5 bln euros, including bolt-on acquisitions worth 2 billion euros. Starace said last week M&A in power distribution assets was the most logical way forward.

Beside the power distribution companies, Eletrobras also aims to exit several business partnerships, referred to locally as SPEs (special purpose enterprises). The state-run power firm expects to raise another 4.6 billion reais from the SPEs.