NEW YORK, April 8 (LPC) - French energy company Engie and Canadian pension fund Caisse de Dépôt el Placement du Québec (CDPQ) will tap into both dollar- and Brazilian real-denominated debt with nine lenders to back its purchase of the Transportadora Associada de Gás (TAG) natural gas pipeline in Brazil from state-controlled energy company Petróleo Brasileiro (Petrobras), according to three sources familiar with the transaction.
The consortium will acquire a 90% stake in TAG after it made Petrobras an US$8.6bn offer on Friday for the asset, the largest-ever bid for a gas pipeline in Latin America. The Brazilian oil producer will retain the remaining 10% stake and will also use TAG’s natural gas transportation services, Petrobras said in a press release on Friday.
Engie and CDPQ are expected to source between US$2.5bn-US$3bn in dollar-denominated debt with three French banks and three Japanese lenders, according to two sources familiar with the transaction. More than 50% of the debt will be raised in Brazilian reais and a portion of the acquisition will be covered by equity, the sources said.
Brazilian banks Banco do Brasil, Bradesco and Itaú are providing the local currency debt while Japan’s Mizuho, MUFG and Sumitomo Bank will team with French lenders BNP Paribas, Crédit Agricole and Société Généralé to round out the dollar portion of the debt financing. Santander was financial advisor to Petrobras, the sources added.
The debt package will repay TAG’s existing debt and is expected to have a maturity of up to eight to 10 years, one of the sources said.
The consortium opted to structure the debt with a longer maturity due to favorable pricing as opposed to a short-term bridge loan that would typically be taken out in the debt capital markets at a later date, the same source added. The consortium expects to cover 70% of the acquisition finance through debt and 30% with equity.
Engie said in a separate statement on Monday that the purchase of TAG would increase the French utility’s debt by roughly US$1.8bn. The company said it will also manage the day-to-day operations of the pipeline and after three years, Engie will take on 100% of TAG’s operations and maintenance requirements.
The banks, Petrobras and Engie either declined or did not respond to requests for comment on the terms of the financing.
Petrobras had been in exclusive talks with Engie and CDPQ over the sale of TAG last year after the pair submitted the highest bid for the asset.
The talks, however, stalled in July 2018 after an injunction from Brazil’s Supreme Court. The court required the country’s Congress to approve the sale of any state-owned asset.
Brazil’s solicitor general overturned the injunction in January but Petrobras, in line with Brazilian law, had to re-open the bidding process for Engie, CDPQ and any other interested parties.
The French and Canadian pair on Friday topped competing offers from consortiums led by Brazilian holdings company Itaúsa Investimentos and a group comprising EIG Global Energy Partners and the United Arab Emirates’ sovereign wealth fund Mubadala, said a third source familiar with the talks. Another party made up of Australian investor Macquarie, Singaporean sovereign wealth fund GIC and the Canada Pension Plan Investment Board had also expressed interest in TAG, sources previously told LPC, a unit of Refinitiv.
The offloading of TAG marks Petrobras’ largest individual asset sale to date under the company’s latest divestment plan, unveiled in December 2018, which seeks to raise near US$27bn from asset sales and partnership agreements over the next five years.
Petrobras in September 2016 sold a similar gas pipeline, Nova Transportadora do Sudeste, for approximately US$5.2bn to a consortium of investors comprising Canada’s Brookfield Asset Management, British Columbia Investment Management Corp, Singapore’s GIC and the China Investment Corp.
The shift away from gas distribution and transportation comes as Petrobras allocates greater investment to the more profitable oil and gas exploration and production segments.
The Brazilian oil company is estimated to need almost US$50bn over the next six years for 40 projects, LPC reported in January. (Reporting by Aaron Weinman. Editing by Lynn Adler and Jon Methven)