China takes biggest stake in EDP

PORTUGAL: The acquisition by state-owned energy group China Three Gorges (CTG) of a 21.35% stake in Portuguese government-backed generator Energias de Portugal (EDP) has created a strategic partnership between the two companies to expand their renewables businesses worldwide.

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On 22 December, the Portuguese government approved the Chinese company's EUR2.7 billion offer ahead of lower bids from Germany's E.on and Brazilian generators Electrobras and Cemig. The 21.35% stake makes CTG the largest shareholder in Portugal's principal electricity generator and wind-power developer.

Under the terms of the deal, CTG has agreed to invest EUR2 billion by 2015 in EDP's renewables business. This entails acquisition of minority stakes in up to 1.5GW of EDP's operating and ready-to-build renewable projects in Europe, the US and Brazil.

A spokesman for the Portuguese Economy Ministry said: "We are very optimistic about it because we feel that the CTG deal brought more than the price for each share. This deal comes with other projects associated with it because CGT are interested in investing." CTG president Cao Guanjing said the share acquisition would help turn his company into "a world reference in renewable energy".

The strategic partnership will give CTG preferred-partner status in new EDP wind-power projects in Europe, North America and the rapidly growing Brazilian market, while EDP will be CTG's preferred partner for future projects in Asia. In China alone, CTG has plans to develop almost 20GW of wind power by 2020.

However, EDP's domestic wind-power market will not be developed further. A Portuguese economy ministry spokesman confirmed that "the licencing of new wind farms has been suspended while Portugal's emergency financing agreement with the troika (IMF, EIB, EC) is in force".

The CTG deal also comes with the promise of a EUR2 billion loan facility from an unspecified Chinese financial institution. This boost to EDP's borrowing power should secure the immediate future of its wind-power projects in Portugal.

The global economic crisis has prompted a shutdown in lending by Portuguese banks, putting at risk the financial viability of the development plans of the ENEOP consortium, of which EDP is a principal partner.

ENEOP is developing 1,200MW of wind-power projects awarded by the Portuguese government and last year was forced to apply to the European Investment Bank (EIB) for EUR350 million in emergency funding after financing arrangements with Portuguese banks fell through.

The EIB eventually agreed to provide just EUR276 million, which is conditional on guarantees from the Portuguese government that tariffs for existing wind farms will not be lowered. This leaves EDP and its ENEOP partners to find the remaining EUR74 million needed to keep their wind-power investments on track and secure the future of an associated manufacturing hub in Viana do Castelo. This comes on top of more than EUR500 million in unbudgeted funding the partners were obliged to provide in 2010 and 2011 to make up for shortfalls in bank lending.

CTG's huge investment commitment will not only improve EDP's liquidity, but also its credit profile. EDP's target is to achieve a net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio below 3.0x by 2015.

Widespread reports in the Portuguese press about plans by turbine manufacturer Goldwind, partially owned by CTG, to build a turbine plant in Portugal as part of the EDP share acquisition have been denied.

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