Three Gorges’ acquisition of EDP stake is an injection of capital and confidence in the Portuguese economy

27 December 2011

Lisbon, Portugal, 27 Dec – China Three Gorges Corporation (CTG) taking a stake in Portuguese power company EDP – an investment of 8.7 billion euros – is seen as an important injection of capital and confidence in the economy, at a time when Portugal is going through a prolonged crisis.

After the Chinese victory was announced, representing the biggest ever Chinese investment in Portugal and making CTG the main shareholder in one of Portugal’s largest companies, the stock market reacted positively, especially banking stocks, whilst the deal was welcomed in the editorials of highly-regarded newspapers.

According to newspaper Jornal de Negócios, “it was a jackpot for EDP and for the State,” as the operations, “brings what both most lack: capital.”

“And the Chinese money that now comes into the company is the same money that the European Union and the IMF went begging for weeks ago to leverage the Euro Zone Stability Fund. It was an embarrassment: Mrs Lagarde and Mr Regling got short shrift,” whilst “Portugal closed the deal,” the editorial said.

Diário Económico opted to write its editorial headline in Chinese characters, noting that Prime Minister Pedro Passos Coelho, “gained the credibility and independence, (…) so often questioned by the, often non-critical, alliances with Merkel’s position in European choices.”

As for the fact that the capital is Chinese, this, “is in the world, in the USA, in Brazil, in all the developed markets,” it said.

According to the Público newspaper the Government, “did well  because EDP has its strategic future guaranteed by the Chiense proposal and because, with all the cynicism and resentment coming from Europe, it is important that Portugal is able to open new windows in its economic relations.”

According to Diário de Notícias it is now clear that privatisations in the near future will not remain in Portuguese hands and the CTG deal shows that, “the results of Asia’s economic and financial ascension on a global scale, have now reached Portuguese shores.”

According to the Portuguese press, it was above all the importance of CTR’s offer to acquire the 21.35 percent of EDP that allowed it to beat Brazil’s Eletrobrás and Germany’s E.On.

The sale of the stake provides the Portuguese state with 2.7 billion euros, but the operation involves more investment and funding, which totals 8.7 billion overall.

CTG’s plan outlines it will invest jointly with EDP in new projects in the Brazilian market, but without affecting the shareholder structure of EDP Brasil.

The secretary of state for the Treasury and Finance, Maria Luís Albuquerque, following a Council of Ministers press conference that, “EDP remains untouched in Brazil,” because China Three Gorges will only be involved in some projects.

According to EDP, the deal will allow it to boost its liquidity, which currently stands at 4 billion euros, to an adjusted figure of 8 billion euros, which makes it possible to, “improve its credit profile,” and reduce its debt, to a figure of less than three times EBITDA, whereas the current ratio is over four times.

In a presentation filed with the Portuguese market regulator, EDP said it would maintain its identity, which would be focused on its core business in the Iberian Peninsula, Brazil and renewable energy.

BCP shares were boosted by news in the Público newspaper that one of the issues most discussed by the Portuguese and Chinese governments was a Chinese bank taking a stake in BCP.

Banco Espírito Santo (BES) which was the financial advisor for CTR in the EDP privatisation, also saw its share price rise. (macauhub)