11/23/2016 15h29

Enel plans to invest €3.2bn in Brazil through 2019

Valor International

Italian group Enel on Tuesday announced its investment plan for Brazil. The company will spend €3.2 billion in the country between 2017 and 2019, of which €1.72 billion will go to expanding distribution grids and generation capacity, and €1.5 billion to maintaining current assets.

The company's chief executive, Francesco Starace, justified the increased investment in Brazil with the need to mainly improve the distribution grid's quality. Responding to a question about potential interest in assets now being sold in Brazil by state-owned companies Eletrobras and Petrobras, the executive said that “there is definitely interest” but added that Enel usually doesn't reveal its acquisition targets in advance.

“There are many distribution assets available in Brazil and not all attract our interest due to geographical issues,” he said.

Enel also controls the former Ampla and Coelce, now renamed Enel Distribuição Rio and Enel Distribuição Ceará. It also operates a thermal plant (Enel Geração Fortaleza) and hydropower dams. The Italian company is investing $2 billion into building 1.2GW of renewable energy from wind and solar sources, in addition to the 1.6GW of installed capacity it already controls in Brazil.

Enel picked London to announce its new business plan, gathering 130 investors and market analysts, in addition to journalists from several of the nearly 30 countries where it operates. The plan includes an overall investment of €20.9 billion through 2019, from €21.2 billion in the previous plan. The financial strategy includes refinancing €12.4 billion in debt, partly with a “green bonds” program, and raising subsidized financing to the tune of €1.2 billion.

Enel wants to reach 2019 with a 1% reduction in its gross debt, to €48.5 billion from the current €49.2 billion. It also wants to lower the net-debt-to-EBITDA ratio to 2.2 from the current 2.5. It also wants to optimize its Latin America equity structure, cutting the number of units to less than 30 from 66. Enel controlled several companies in Chile, Argentina, Brazil, Colombia, and Peru through Chilectra, Enersis, and Endesa Chile, but now only the Chilean operations are under the Enel Chile umbrella while the rest are held by Enel Americas.

Brazil will get the most investments in Latin America, nearly half the €7 billion Enel plans to pour into the continent through 2019. The amount going to the region increased €300 million from last year's business plan. Enel splits the funds into expansion investments, with €4.8 billion, and maintenance, with €2.2 billion. 

Chief financial officer and investor relations director Alberto De Paoli said that approximately €1.2 billion from the overall investment will go toward improving distribution grids in Brazil. The final amount depends on negotiations with the National Agency of Electric Energy (Aneel) related to Ampla, now called Enel Distribuição Rio, which serves the interior of Rio de Janeiro state, Mr. De Paoli said.

Commenting on the political and economic crisis in Brazil, Mr. Starace admitted it raises concern but said it is starting to ebb because, in his view, the Brazilian regulatory system is working. “We're very confident the crisis will pass in Brazil and the country will return to the investment horizon. We believe that Brazil will be a great opportunity and we're investing during this cycle,” he said.

Enel also said it will invest about €5.8 billion expanding distribution grids and another €5.2 billion in renewable energy generation. The company plans to sell 8% of its assets worldwide in the next three years, although Mr. Starace said which ones and how the money will be spent is only going to be revealed later. The company listed as one of its priorities spending €2 billion to repurchase shares held by minority shareholders. Another priority is to save €1 billion by cutting operating costs through grid digitalization.

The Italian giant wants to adopt a new investment model less aimed at using its own capital to build renewable plants, according to a model that includes building, operating and selling stakes in the plants to accelerate returns, the executives said.