Brookfield Bullish on Brazil With Bolsonaro’s Pro-Business Bent
(Bloomberg) -- Brookfield Asset Management Inc., one of the world’s largest alternative asset managers, wants to capitalize on a wave of privatizations in Brazil as the new government of Jair Bolsonaro government moves to bring fiscal discipline to the country.
“With meaningful, large positions in many of those sectors already, I think we’re just very well positioned to look at various tuck-unders and growing our current platforms if new assets come to market," Sam Pollock, chief executive officer of Brookfield Infrastructure Partners LP, said on a call with investors on Wednesday. “We’re just well-positioned as an incumbent rather than someone who is coming fresh.”
Brookfield’s various subsidiaries, including its infrastructure arm, have been actively investing in Brazil in recent years, including its acquisition, with a group of investors, of a Brazilian natural gas distribution business from Petroleo Brasileiro SA in 2016 for roughly $5.6 billion.
“We expect higher growth rates, lower inflation and interest rates, a stronger currency and more bullish market conditions,” Pollock said earlier in a letter to shareholders. The decline in interest rates has already allowed the company to refinance its gas transmission business after a meaningful decline in interest rates, he said.
The change in government is already generating renewed interest in Brazil, he said.
“We are seeing increased competition for high-quality assets, with more investors willing to bid higher values for infrastructure assets, relative to the last few years,” Pollock said. He pointed to a recent auction for an electricity transmission business in December where bids came in 40 percent higher than the value Brookfield ascribed to its investments during the depths of Brazil’s economic downturn.
“This market dynamic reaffirmed our view that these types of assets were trading significantly below intrinsic value a few years ago simply because the country was out of favor,” Pollock said, adding that currency stability will also create a tailwind.
Brookfield Infrastructure reported $71 million, or 6 cents a unit, of net income for the fourth quarter, in line with last year’s earnings. Its funds from operations grew 4.1 percent over the year to $326 million, or 82 cents a unit, compared to $313 million, or 80 cents a unit. The infrastructure arm also increased its dividend by 7 percent.
Pollock said Brookfield has been very active monetizing its mature assets, including reaching an agreement in January to sell up to a third of its stake in its Chilean toll road business. He said the firm has five other sales processes underway that are expected to generate an additional $1.5 billion to $2 billion in the next 12 to 18 months.
“Going forward, we expect the majority of our growth to be funded by the proceeds from asset sales and cash flows retained in the business,” Pollock said. “This is different than when we started the business 10 years ago. In previous years, we issued equity to fund much of our M&A investments and large-scale capital projects.”
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