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CTG leads acquisition of Odebrecht's hydro plant in Peru

Aug 25, 2017

Chinese investors agree to pay $1.39bn for the Chaglla hydroelectric plant, capping a deal that took more than two years to complete, sources say

Aaron Weinman

Keywords: M&A hydroelectric power China Three Gorges CTG Chaglla Odebrecht Odebrecht Latinvest Hubei Energy Group China

A consortium led by China Three Gorges (CTG) has agreed to buy the Chaglla hydroelectric power plant in Peru from Brazil's Odebrecht for $1.39bn, putting the final touch on a deal that has spanned more than two years.

The CTG-led consortium, which includes Hubei Energy Group, Ace Investment Fund and CNIC Corporation, conducted the acquisition through the Huallaga Holding Company, a limited liability company registered in Hong Kong, Odebrecht's Latin American subsidiary, Odebrecht Latinvest, said in a statement.

The investors will cover approximately half of the purchase price with equity and make up the rest with debt, a source familiar with the transaction told LatinFinance.

The group will likely get a bridge loan to pay for part of the acquisition, followed by a takeout in the debt capital markets, a second source said.

Odebrecht will use the proceeds to pay off fines in Peru, the sources said. Earlier this year, the Peruvian government ordered the company to leave the country after it admitted to paying $29m in bribes between 2005 and 2014. Odebrecht is not allowed to take any money out of Peru until it has paid the fines, the first source said.

The company will also use the proceeds to make substantial debt repayments, the second source said.

The transaction is subject to regulatory approval from authorities in Peru and China.

Chinese companies have recently made a number of high-value acquisitions in the power and infrastructure sectors in Latin America. From State Grid buying  CPFL Energia to CTG snaring  Duke Energy’s Brazilian business, both sources said Chinese state-owned enterprises have a government mandate to grow in core areas.

"The key is to stick to core business areas," the first source said. Chinese contractors are also poised to benefit from ancillary business opportunities in the region.

Located in northern Peru, the 456 MW Chaglla facility had generated interest from Canadian investor Brookfield, Chilean utility Colbun and US energy investor Contour Global, sources previously told LatinFinance.

Odebrecht secured $774m in project financing for Chaglla from commercial and multilateral lenders in July 2013 and signed a 15-year power purchase agreement with state-owned Electroperu in October 2016.

Itau BBA, Scotiabank and SMBC Nikko were the financial advisors for Odebrecht, while White & Case was the legal advisor. Bank of America Merrill Lynch was the financial advisor to the CTG-led group, while Sullivan & Cromwell was the legal advisor.



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