EDP Plans to Double Size in Brazil on Power Transmission Bet

(Bloomberg) -- The Brazilian unit of EDP - Energias de Portugal SA plans on boosting investments once Latin America’s largest economy starts to recover, aiming to double in size by 2020.

The firm, which began operating in Brazil during the privatization wave of the 1990s, is “completely optimistic” with the outlook for the country, Chief Executive Officer Miguel Setas said in an interview at Bloomberg’s Sao Paulo office. With single-digit interest rates and subdued inflation, what’s missing is growth and a materialization of the government’s agenda of reforms, he said.

Energias do Brasil, as the company is known, plans to focus investments in distribution and transmission lines, a segment which it recently entered and that has planned capital expenditures of 3 billion reais ($801 million) for the next four years. Transmission should account for 20 percent of the balance sheet by 2021, up from zero currently, with five transmission lots to be built, he said.

The firm didn’t win contracts at the last few transmission line auctions, which had what Setas called predatory competition, but expects a secondary market to develop in case companies that won previous lots in auctions lose interest in the asset or don’t have the financial conditions to move forward with the projects.

“If there’s an opportunity, we can invest even more,” Setas said. The company’s net debt is currently at around two times earnings before interest, tax, depreciation and amortization, below the average 3.5 times for the sector. The gap gives the firm “one Ebitda” of potential new leverage in case, he said.

Energias do Brasil’s growth plan also includes monitoring opportunities to increase its current stake or even control Centrais Eletricas Santa Catarina should the utility be privatized, as well as acquiring other strategic assets. New areas, especially solar power, are also on the radar, according to Setas.

With a market cap of about 9.4 billion reais, Energias do Brasil ranks as the eighth biggest company in Brazil’s index of electrical energy companies. It posted an adjusted net income of 748.7 million reais in the first nine months of 2018, according to the latest available.

--With assistance from Mario Sergio Lima.

To contact the reporters on this story: Taís Fuoco in Sao Paulo at tfuoco1@bloomberg.net;Sabrina Valle in Rio de Janeiro at svalle@bloomberg.net;Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Peter Millard

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