State Grid Corporation of China has agreed to buy 100% of the share capital of seven high voltage electricity transmission assets in Brazil from Spain’s Actividades de Construcción y Servicios (ACS) and affiliates.
The purchase by State Grid International Development (SGID), a wholly owned subsidiary of State Grid, will be for a total equity consideration of R$1.05 billion, with assumed net debt of R$814 million as of April 30, 2012.
The seven electricity transmission assets are located across eight states in Brazil, and have a total length of about 2,792 km. Most of the assets are in operation, with the remainder expected to start commercial operation by the end of this year.
ACS, one of the leading diversified contractors in Europe, has been under pressure for several months to reduce its debt level by selling off assets throughout the world. The company was one of four that owned the seven Brazilian power transmission concessions sold to SGID in December 2010.
Its recent difficulties have forced it to make divestments, so it is likely that SGID was able to negotiate a favourable price.
SGID is State Grid’s flagship entity for developing its international business and making international investments. This transaction will be its second investment in Brazil and fourth major venture outside of China.
In January 2012, it announced the purchase of 25% of Portugal’s national power grid company, Redes Energéticas Nacionais. SGID was also the largest shareholder in a consortium that won a 25-year concession to operate the National Grid Corporation of the Philippines in January 2009.
The latest transaction is subject to the approvals of regulatory bodies in China and Brazil, and customary closing precedents agreed between the two parties. It is expected to be completed within three or four months.
Bank of America Merrill Lynch acted as exclusive financial adviser to SGID, while ACS was advised by Mediobanca.
State Grid was set up in December 2002 and is the biggest utility company in the world. Its power grid covers around 88% of territory in China, with ultra-high voltage projects in commercial operation.
Troubled ACS is structured into four operating divisions: construction, concessions, environmental services and industrial services. In addition, ACS is the biggest shareholder in Iberdrola (a Spain-based multinational electric utility company) with a 14.85% stake.