LDN - Business

Exclusive: Neoenergia seeks $11 billion valuation in Brazil, U.S. IPO, sources say

[July 14, 2017] By Tatiana Bautzer and Guillermo Parra-Bernal

SAO PAULO (Reuters) - Neoenergia SA, whose takeover of a smaller rival will turn it into Brazil's No. 1 power utility by customers served, is working on a dual initial public offering in São Paulo and New York that could value it at up to 35 billion reais ($11 billion), three people with direct knowledge of the plan said.

The IPO could be launched around September, when the people expect Neoenergia SA to have won industry regulatory approval for Elektro Eletricidade & Serviços SA's takeover. Antitrust agency Cade gave the nod to the takeover on July 4.

Spain's Iberdrola SA will have 52.4 percent of Neoenergia once the takeover is completed. The dual listing will be a so-called secondary offer, allowing Banco do Brasil SA and pension fund Previ Fundação [PREVI.UL] to sell part of their 9.4-percent and 38-percent stakes, respectively, in Neoenergia, the people said.

Banco do Brasil, Iberdrola and Previ declined to comment, while Neoenergia said that no decision has been taken yet on a potential debut offering.

The people spoke under condition of anonymity because the plan remains private.

Listing Neoenergia in both stock markets would give the utility access to a wide base of investors seeking greater exposure to an industry that for years has struggled with erratic policies, a harsh recession and high borrowing costs.

Chinese power conglomerates have become the dominant force in Brazil's power industry with high-profile acquisitions that have resulted in delistings. State Grid Corp of China's $12.1 billion purchase of CPFL Energia SA - the largest-ever foreign acquisition in Brazil - involves a buyout of small shareholders.

Shares of Iberdrola fell 0.1 percent to 6.872 euros in Madrid on Friday, paring gains this year to 19 percent. Banco do Brasil's common shares are up almost 5 percent this year.

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INVESTMENT BANKS

When announcing the Elektro acquisition on June 8, Iberdrola committed to list Neoenergia when Previ and Banco do Brasil "deemed it appropriate."

Neoenergia's business scope includes power generation, transmission and distribution across Brazil, in an area almost five times as big as Iberdrola's in Spain. With 13.4 million customers in Brazil, the Elektro deal could be followed by a transfer of Iberdrola's windfarm assets to the combined entity.

Banco do Brasil, the country's No. 1 state-controlled lender, is looking for investment-banking peers to help it underwrite the IPO, two of the people said, naming Banco Santander Brasil SA, Morgan Stanley & Co and Credit Suisse Group AG as candidates.

Other local investment banks vying for underwriting roles include Itaú Unibanco Holding SA and Banco Bradesco SA, the people said.

The banks declined to comment.

In the wake of the Elektro acquisition, Neoenergia said combined annual earnings before interest, tax, depreciation and amortization was 3.6 billion reais ($1.12 billion) last year on a proforma basis, on revenue of about 31 billion reais.

If successful, Neoenergia's IPO may be one of Brazil's largest this year. The last stock market debut of a Brazilian electricity company in Brazil took place in July 2013, when CPFL Energias Renováveis SA raised about 364 million reais ($113 million) from investors.

Still, efforts by President Michel Temer's administration to undo some of the policies of his predecessor Dilma Rousseff - who imposed caps on project returns and renegotiated contracts that led to copious losses - have revived industry equity offerings.

Over the past year, utilities have raised 3.6 billion reais through equity offerings, more than in the prior four years, according to Thomson Reuters data. Omega Geração SA expects to price a 1.4 billion-real IPO on July 27.

(Additional reporting by José Elías Rodríguez in Madrid; Editing by Lisa Shumaker)

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