Three Gorges outbids rivals for stake in EDP

Three Gorges Corporation has won a bidding contest to buy a stake in Energias de Portugal, the country’s dominant power company, for €2.7bn ($3.5bn) in a deal that is seen as a forerunner of other potential asset sales to China by debt-stricken eurozone economies.

Three Gorges defeated rival bids from Eon, Germany’s largest utility, Eletrobras, Brazil’s state-controlled power company, and Cemig, another Brazilian contender.

In a statement to Lisbon’s stock market authority, Portugal’s state holding company said Three Gorges would pay €2.69bn for 21.35 per cent of EDP, becoming the utility’s largest single shareholder.

The Chinese group will pay €3.45 a share, representing a premium of 53 per cent over Wednesday’s closing price. EDP shares rose more than 4 per cent to €2.33 on Thursday ahead of the announcement.

The Portuguese government said Three Gorges would also invest up to €2bn to acquire minority stakes in Portuguese wind farms and extend €4bn in credit lines to EDP.

The sale of Lisbon’s last remaining stake in EDP, a former state monopoly, is one of the first eurozone privatisations to go ahead in the wake of the region’s sovereign debt crisis.

Under the terms of a €78bn bail-out agreement with the European Union and International Monetary Fund, Lisbon has agreed on an extensive privatisation programme that will also include the national grid operator and state airline.

Forceful lobbying by the contenders, including support for Eon’s bid by Angela Merkel, German chancellor, has made the sale a contentious political issue in Portugal, with opposition parties insisting on a demonstrably impartial decision.

The sale was a blow to Eon, which had hoped to gain a foothold in the fast-growing Brazilian market, where EDP has extensive operations.

Johannes Teyssen, Eon chief executive, said his offer, which included moving the headquarters of some of Eon’s renewables business to Portugal, “would have been good for Eon and EDP”. But the German company had not been able to offer more “than what we can justify as an appropriate [ ... ] investment.”

Bankers said EDP would need approximately €2.6bn a year over the next three years to service a total debt of about €10.8bn.

Portugal’s Banco BPI said Three Gorges was seen as having made “the best offer in terms of independence for EDP’s strategy and the deleveraging of its balance sheet”.

Lisbon analysts said Eon was understood to have bid €3.25 a share.

Credit Suisse was lead financial adviser to Three Gorges.

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