Brookfield Infrastructure (BIP)-Led Consortium to Take Controlling Stake in Petrobras' (PBR) NTS for $5.2B
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Brookfield Infrastructure (NYSE: BIP) and institutional clients of Brookfield Asset Management (NYSE: BAM), including CIC Capital Corporation, GIC Private Limited and others (the "Consortium"), announced that they have reached agreement to acquire a 90% controlling stake in Nova Transportadora do Sudeste S.A. ("NTS" or the "Company"), a system of natural gas transmission assets in the southeast of Brazil currently owned by Petroleo Brasileiro S.A. ("Petrobras"), for approximately US$5.2 billion. Brookfield managed entities will hold a controlling interest in the Consortium. Brookfield Infrastructure's investment will be a minimum of approximately 20% of the transaction, representing approximately US$825 million of the transaction consideration payable on closing. The remainder will be owned by institutional partners. Petrobras, as a 10% owner in NTS, will have customary governance rights commensurate with the size of its interest.
"This is a unique opportunity to invest in a large-scale, high quality utility business and participate over time in Brazil's growing gas industry," said Sam Pollock, Chief Executive Officer of Brookfield Infrastructure. "We expect this business will contribute meaningfully to our results going forward by delivering stable, inflation-linked cash flows backed by long-term, fixed-price, off-take agreements. We are very pleased to be significantly expanding our utilities business in a sector and geography that we know well and that we believe will offer opportunities to deploy further capital at attractive risk-adjusted returns."
-- Well located, energy infrastructure assets. NTS owns the infrastructure
supplying natural gas to Brazil's core industrialized and most populated
states, including Rio de Janeiro, Sao Paulo and Minas Gerais.
-- Stable and growing cash flows with no volume risk. The Company operates
a utility-like business under a stable regulatory framework with volumes
100% contracted under long-term "ship-or-pay" gas transportation
agreements ("GTAs") with full inflation indexation.
-- Unique opportunity to invest and participate in Brazil's growing gas
industry. Brazil's gas market is expected to grow substantially by 2030
with the development of associated natural gas supplies coming from the
Pre-Salt offshore oil fields in Southern Brazil.
NTS is a 2,048 km pipeline system that provides the transportation network for natural gas in Brazil's most industrialized and populated states in the south-central region of the country. The majority of the Company's assets were installed in the last ten years, connecting the states of Rio de Janeiro, Sao Paulo and Minas Gerais with natural gas coming from Bolivia and Brazil's offshore oil and gas fields. These assets operate under long-term concessions with revenues derived from five "ship-or-pay" GTAs, subject to a regulated utility structure overseen by the national energy regulator.
The GTAs account for 100% of the pipeline capacity and provide the country's main gas supplier, Petrobras, access to end users including local distribution companies, gas fired power generation plants and industrial users. The weighted average remaining life of the GTAs is 14 years. In addition, upon expiry of the GTAs, NTS is entitled to continue to earn a return on and return of capital remaining in the business, plus recovery of all operating and maintenance costs until the end of the concessions in 2039 through 2041.
Under the terms of the transaction, the purchase price is payable in two tranches an up-front payment of US$4.3 billion due on closing of the transaction, and the balance payable on the fifth anniversary of this closing.
Brookfield Infrastructure will fund its proportionate share of the up-front payment (approximately US$825 million) from existing liquidity which totalled approximately US$2 billion at June 30, 2016.
As part of the transaction, Brookfield Asset Management has agreed to participate initially for an approximate 30% interest in the Consortium. Brookfield Asset Management expects to syndicate its holdings prior to closing of the transaction and Brookfield Infrastructure has priority rights to take up a portion of this syndication.
Initially, the pipelines will be operated by a subsidiary of Petrobras under a multi-year operations and maintenance contract. Over time, Brookfield Infrastructure will have the flexibility to transition NTS to a fully stand-alone operating business and internalize all management and operating functions, if desired.
Closing of the transaction remains subject to a number of conditions. These conditions include (among others) the finalization, to the satisfaction of the relevant Petrobras and Consortium parties, of terms and conditions of a number of long-term agreements relating to the ongoing operations of the business. The transaction is also subject to a number of other customary conditions, including regulatory approvals. Closing of the transaction is targeted for December 2016 or as soon as possible thereafter.
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