Brookfield Renewable Energy Partners L.P. (TSX:BEP.UN)(NYSE:BEP) has committed to acquire 57.6% of the outstanding common shares of Medellín based Isagen S.A. (BVC:ISAGEN) from the Colombian government. In an auction held at 8am today that had only Brookfield as a bidder, the Colombian government announced and approved Brookfield’s offer as acceptable. Isagen owns and operates a renewable energy portfolio consisting of 3,032 megawatts (MW) of principally hydroelectric generating capacity and a 3,800 MW development portfolio in Colombia.
Brookfield Renewable is the flagship listed renewable energy company of Brookfield Asset Management, a global alternative asset manager based in Toronto, Canada with roughly $225 billion USD of assets under management.
The Colombian government sold its stake in Isagen to fund its ambitious 4G highway modernization project. “Isagen is a great business for the Colombian community, for the wellbeing of the community and the Colombian economy. Its sale is the most reasonable and logical,” said Colombia’s President Juan Manuel Santos in a statement.
According to Santos, usually the private sector is more efficient in asset management. The President reiterated that the proceeds from the sale will augment the government’s capacity to make more profitable investments in Colombia’s transportation infrastructure, especially highways, bridges, and tunnels. The sale was vigorously opposed by labor unions, some political parties, and Colombia’s Prosecutor General, Alejandro Ordoñez, who works independently of the President. The sale was blocked once, in May of 2015, by legal challenges issued by opponents of the sale. The Santos Administration was able to eventually defeat the initiatives and move forward with the sale.
A Brookfield-led consortium will acquire 1,570,490,767 common shares of Isagen for aggregate consideration of COP $6.486 trillion pesos (approximately $2 billion dollars), payable in cash in US dollars on the expected closing date of January 26, 2016. This reflects a purchase price of COP $4,130 per share (approximately $1.38 USD). Brookfield Renewable’s equity commitment will be approximately $243 million USD giving it an approximate 9% interest in Isagen. Brookfield Renewable currently has $1.2 billion of available liquidity and will fund its commitment with available resources.
Sachin Shah, Chief Executive Officer of Brookfield Renewable, said: “We are extremely pleased to grow our business in Colombia, an attractive market with strong long-term growth fundamentals, a highly skilled labor force and continued need for new investment. This transaction aligns with our objective of building our global renewable energy business with high quality, predominantly hydro assets.”
The Brookfield-led consortium is also required to conduct two tender offers with respect to the remaining outstanding shares of Isagen. Assuming all remaining Isagen shares are sold to the Brookfield-led consortium pursuant to these tender offers, Brookfield Renewable’s additional equity commitment would approximate COP 1.552 trillion (approximately $517 million USD), which it would fund with a committed $500 million acquisition facility and existing liquidity, giving it an approximate 25% interest in Isagen.
Brookfield’s perspective on Isagen (from a statement):
- Isagen is the third-largest power generation company in Colombia with an installed capacity of 3,032 MW. The portfolio is comprised of six hydroelectric plants, and includes the country’s largest operating hydro power generating facility (San Carlos) and largest hydro-based reservoir by volume (Sogamoso). Average annual generation approximates 15,000 GWh and accounts, on average, for approximately 20% of Colombia’s annual production.
- Isagen has delivered consistent operating results over the last 20 years and is well positioned to participate in the country’s growth. Approximately 80% of Isagen’s energy sales are derived from contracts with a broad base of large commercial and industrial customers and distribution companies. In addition, Isagen benefits from a fixed stream of reliability and capacity payments.
- Isagen has high-quality and modern generating facilities with an average facility age of 18 years. The company’s management team and employees possess extensive experience in operating electricity businesses and a comprehensive knowledge of the Colombian energy market.
- The company has approximately 3,800 MW of potential expansion projects in the early stages of development providing a long-term growth opportunity.
- Colombia is one of the strongest and most stable economies in South America with a population of approximately 48 million, nominal GDP of US$380 billion and projected GDP growth of approximately 4% annually. Hydroelectricity is integral to the country’s supply mix, accounting for 70% of installed capacity, with higher-priced natural gas and coal accounting for most of the remainder. Despite uninterrupted power demand growth since 2000, the country’s per capita electricity consumption is still below the South American average, representing attractive growth potential.
Brookfield Renewable Energy Partners operates one of the world’s largest publicly traded, pure-play renewable power platforms. Their portfolio consists of hydroelectric and wind facilities in North America, South America and Europe and totals more than 7,000 megawatts of installed capacity, generating enough renewable energy to power more than four million homes. Brookfield Renewable is listed on the New York and Toronto stock exchanges as (TSX:BEP.UN) and (NYSE:BEP).