Portugal sells EDP’s stake to China to reduce debt

The government of Portugal has sold to the Chinese company Three Gorges Corporation a package of shares representing 21.35% of the social capital that the state held in the Portuguese electrical company Energias de Portugal (EDP), in exchange of a payment of €2.693 billion, according to information provided by the government investment company Parpública to the Portuguese market supervisor, CMVM.

The Portuguese executive explains that its choice was based of the “greater merit” of the purchase proposal made by the Chinese company that competed in the process of privatisation of EDP with the German company E.ON and the Brazilian companies Cemig and Electrobras, which also submitted binding offers last December 9.

More specifically, the €2.693.18 billion offered by the Chinese firm with the purpose of obtaining 21.35% of EDP represent a 53.6% premium above the market price of the Portuguese company on the December 21.

The sale of this stake is part of a round of privatisations undertaken by the Portuguese government within the framework of adjustment measures agreed on with the IMF and the EU in order to receive financial aid.

According to Santiago Carcar, a reporter for El País and a specialist in the energy sector,

“…China, the great empire of the XXI century, has decided to take positions where there are raw materials or the possibility of controlling its commercial channels. It does so for economic reasons, to feed its insatiable demand of the energy. China does not look at the price. The important thing is to manage to put its foot where it’s convenient for national interests.

“In Europe, Chinese companies had no presence until they landed in Portugal, and in North America distrust of the Asian power is remarkable. So China has decided to take advantage of the great opportunity offered by the collapse of public finances in the Old World to advance positions…”

For Banc Sabadell financial analysts,

“This acquisition could have been interesting for E.ON to expand its presence on the Iberian Peninsula and the renewable sector, but the price was too high. The purchase of EDP would have increased its indebtedness from an EBITDA’12 economic net debt of 0.91X to 3.09X.

Also, the experts believe that the privatisation of EDP

“does not suppose a 100% takeover bid later on in the short term that would have a price that would benefit all the shareholders and because of this we maintain our recommendation to SELL and we suggest a P.O. of 2.5 to 2.8 euro/share that leave a scarce potential of +2.4% /+14%.”

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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