Petrobras divests TAG pipeline in $8.6bn deal

June 2019 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

June 2019 Issue

A consortium led by French multinational utility company Engie SA has won a bid for Petrobras’ Transportadora Associada de Gás (TAG) pipeline arm with an $8.6bn offer, including an $800m debt payment by Engie to the Brazilian state development bank BNDES.

Under the terms of the deal, the consortium, which consists of Engie and Canada’s state-owned financial and investment firm Caisse de Dépôt et Placement du Québec, will own a 90 percent stake in TAG. Petrobras will retain a 10 percent stake. ENGIE’s net total ownership of TAG, both directly and indirectly through Engie Brasil Energia, will amount to 49.3 percent. The deal is conditional upon the approval of the relevant governance bodies of Petrobras and the Brazilian and European Union anti-trust authorities.

Engie said the acquisition of TAG would result in its net debt increasing by around $1.8bn. The consortium has secured around $6bn in financing to help fund the acquisition from 10 unnamed banks, three Brazilian and seven international. Organised under a project finance structure with a one-year term, Engie will repay the banks involved in the deal with the cash flow generated by receivables from TAG contracts, according to Engie Brasil chief executive Mauricio Bahr.

The Engie-led consortium topped offers from two other competing consortia, led by Itausa Investimentos Itau SA and EIG Global Energy Partners with Mubadala Investment Co, respectively. The difference between the bids is believed to have been negligible – less than 1 percent.

The deal will boost Engie’s presence in a fast-growing sector and enable Petrobras to cut its debt. The TAG pipeline accounts for 47 percent of Brazil’s entire gas infrastructure, it is the largest natural gas transmission network owner in Brazil and the division’s assets consist of 2800 miles of gas pipelines in Brazil, achieving core earnings of $1.14bn in 2018. TAG has “an asset base providing an attractive and stable regulated profit stream to Engie”, the company said in a statement.

“Our acquisition of TAG is a significant milestone for Engie in Brazil, a key market for the group where we have been present for 23 years,” said Engie chief executive Isabelle Kocher. “It is fully aligned with Engie’s strategy to become the leader of the zero-carbon transition, supporting Brazil in the decarbonisation of its energy mix. It will also enable the Group to build on its infrastructure expertise while diversifying its network activities and seizing opportunities in growing markets,” she added.

The successful offer for TAG brings an end to Petrobras’ biggest divestment to date and is a significant milestone for Petrobras’ chief executive Roberto Castello Branco, who has been pushing the company to aggressively unload assets in a bid to cut debt and refocus on exploration and production. In September 2016, Petrobras sold a larger gas network pipeline, Nova Transportadora do Sudeste, to Brookfield Infrastructure Partners LP, which beat a bid by Engie, for $5.2bn. The deal will help reduce Petrobras’s debt pile, which stood at $69.3bn at the end of 2018. The company hopes to raise $26.9bn through asset sales.

The process of selling TAG began in 2017 but was halted by a Supreme Court injunction in 2018 which ruled that the Brazilian Congress must approve all privatisations. As a result, Petrobras said it would suspend the sale of certain refineries, its TAG pipeline and the Araucaria fertiliser factory. Engie and two other interested consortia had been in the running for TAG at the time of the ruling. In January, Brazil’s solicitor general won its bid to overturn the injunction that was preventing the TAG sale.

Petrobras will continue to distribute natural gas through the TAG system under long-term contracts, the company said in the statement.

Richard Summerfield