Odebrecht Seeks Renewable-Energy Partners as Brazil Funds Dry Up

Odebrecht Seeks Renewable-Energy Partners as Brazil Funds Dry Up

By Vanessa Dezem / Bloomberg

8:00 AM BRT
April 27, 2015

Odebrecht Energia, a unit of Brazilian construction giant Odebrecht SA, is seeking investors to buy stakes in its renewable-energy assets as credit conditions deteriorate in Brazil.

The developer is in talks with four international pension funds that are interested in the company’s wind, biomass and hydroelectric plants, said Felipe Jens, chief investment officer of Sao Paulo-based Odebrecht Energia. The company has 2.4 gigawatts of installed capacity in the country.

“The way to perpetuate growth in this sector is to seek a partner,” Jens said in an interview in Sao Paulo. “You can invest more tapping resources from others.”

With Brazil boosting interest rates to combat inflation, the economy is heading for its worst year since at least 1992 while a widening graft scandal prompts street protests. For companies, financing options are narrowing.

Even the government’s development bank, a long-time supporter of business with subsidized loans, is holding back on its largesse and raising interest rates. For foreign investors looking for bargains, the crisis may provide some. A local currency near a 10-year low also helps make local assets cheaper in U.S. dollars.

“This is the year of mergers and acquisitions in Brazil,” Thais Prandini, director at energy consulting firm Thymos Energia, said in a telephone interview from Sao Paulo. “Everything is cheaper than when Brazil was doing well”

The economic slowdown follows a boom of investment in renewable energy in past years as the country sought to diversify its power generation.

Capacity Increase

Brazil’s installed capacity for wind power rose 82 percent last year to 6 gigawatts as projects came online, according to the World Wind Energy Association. Biomass generation increased 17 percent as a drought thwarted hydroelectric output and led spot power prices to surge, according to Unica, the country’s sugar and ethanol millers association.

The expansion was largely funded by the BNDES, as the development bank is known, but times have changed.

“There is definitely a reduction of funding resources in Brazil,” said Jens. “We must be careful about new investments, especially regarding the availability of sources of capital.”

The timing is ripe for Odebrecht to sell some of its renewable-energy assets as most of the plants have just started operations and the construction phase is over, Jens said. The plan is still under discussion at Odebrecht’s board and the company hasn’t hired advisers yet, he said.

The developer would use resources from foreign partners to expand its power-generation portfolio in Brazil and elsewhere in Latin America, Jens said.

Existing Projects

Odebrecht’s 108-megawatt Corredor do Senandes wind complex in southern Brazil could be expanded by 70 megawatts. The company is also developing a 240-megawatt wind project in the northeast. Its 738 megawatts of installed capacity in thermoelectric plants fueled by biomass are planned to be expanded to 854 megawatts.

In Peru, Odebrecht has government approval to build two hydroelectric plants for a combined 780 megawatts. In Panama, it is trying to get approval for a 224-megawatt hydro project.

Odebrecht is one of Brazil’s biggest construction and engineering conglomerates, with operations in 21 countries. Investments in energy assets represent less than 2 percent of its revenue.

Its Norberto Odebrecht Construtora unit was cited in testimonies of the probe into graft at state-run oil producer Petroleo Brasileiro SA, or Petrobras. The company faces allegations it bribed officials at Petrobras to obtain contracts from the oil producer. It has denied any wrongdoing.

Petrobras Probe

The conglomerate’s Odebrecht Ambiental unit is among companies blocked from doing business with Petrobras because of the investigations. Odebrecht Energia was not implicated in the allegations.

Still, the probe has depressed credit for Brazilian companies in general, said Cristiane Spercel, a Moody’s Investors Service corporate finance analyst in Sao Paulo.

“Since the beginning of investigations, we see a greater difficulty for companies to get financing,” said Spercel.

Jens says the difficulties originated by the corruption investigations aren’t spreading to other units and that for Odebrecht, “it’s business as usual.”

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