Neoenergia Stomps Expansion Trail

Neoenergia, the Brazilian integrated power company, is scanning the horizon for ways to deploy a BRL2.5bn warchest, says Erik Breyer, CFO. “We are looking for opportunities to invest in the [Brazilian] power sector,” he says. Breyer notes it is the company’s standard practice to look at any and all investment opportunities, whether greenfield or acquisition of companies and operating assets. Neoenergia has been proactively looking to invest aggressively in the past 2 years, during which it has bought greenfield concessions. With debt of around BRL5.0bn, all denominated in BRL, LTM Ebitda of BRL2.6bn and cash of BRL2.5bn, Neoenergia’s net debt to Ebitda stands at just below 1x, says Breyer. That allows the company to lever up substantially should it need to for a large acquisition. “We have the cash and the balance sheet [to make investments],” says Breyer. Among power assets located in the Northeast of Brazil rumored to be candidates for sale are Equatorial’s Cemar and Geranorte. Executives at Equatorial decline to state whether they are sellers, and emphasize their interest in acquiring and managing power assets in Brazil. Neoenergia, which is owned by Iberdrola (39%), Previ (49%) and Banco do Brasil (12%), controls the larger Northeastern power assets Cosern, Celpe and Coelba, as well as assets in 5 other states. Sector executives are unanimous in noting there are several live discussions in the sector that will drive a substantial consolidation, though bankers complain there is too much talk and not enough trigger pulling. “The deals will happen, but at the pace of the utilities, not bankers,” says Breyer. The CFO expects to begin accessing the local bond market in 2010 to extend maturities on debt, provided conditions are welcoming. While he sees no urgent need to tap – the bulk of debentures begin maturing in 2012 – the company is focused on managing the yield curve and spacing to avoid clumps of maturing debt.