Caisse to Co-Invest in Colombia's Infrastructure?
An infrastructure co-investment platform was officially launched with the President of the Republic of Colombia, Iván Duque, the President and CEO of Caisse de dépôt et placement du Québec (CDPQ), Michael Sabia, and FDN President Clemente del Valle, as well as the presidents of all Colombian pension fund administrators in attendance.This is a big deal for all parties involved. The Caisse gets a great partner in FDN and in return FDN gets an experienced partner in the Caisse, an organization which is arguably one of the best infrastructure investors in the world and doing things no other pension is doing in the asset class, like the greenfield REM project.
The FDN and Colombian pension fund administrators (AFPs) have created a new private capital fund of USD 490 million. This fund will co-invest with CDPQ through a platform whose objective is to make capital investments in infrastructure projects and companies for a total amount of up to USD 1 billion. CDPQ will contribute up to USD 510 million. The minimum size of each investment will be USD 50 million, split between the fund and CDPQ.
"We are very pleased to invest in Colombia with the private capital fund created by the FDN and pension fund administrators. This partnership combines our partners' market knowledge with our expertise in infrastructure. We believe that together, we can find the best investment opportunities in a variety of sectors, generate returns for our respective pensioners and at the same time contribute to economic growth in Colombia", stated Michael Sabia, President and CEO, CDPQ.
Following significant efforts to raise infrastructure debt financing, the FDN also identified a need for equity investments. This is how it came to spearhead the creation of the private capital fund, the co-investment platform and the partnership with CDPQ, a long-term strategic partner with a vast experience in infrastructure investment in various countries. Through these three initiatives, the FDN will be able to mobilize up to 10 times the invested resources.
"With this private fund, capital will be invested in infrastructure, with the support of all Colombian pension fund administrators, who will be able to make long-term equity investments in projects and companies, hand-in-hand with a professional, highly reputable investor and global leader in infrastructure investment, CDPQ. This is a leap for the country in the field of infrastructure financing", said FDN President Clemente del Valle.
The investment processes of the private investment capital fund will be conducted by the administrator, INFRAESTRUCTURA ASSET MANAGEMENT COLOMBIA SAS, a wholly-owned FDN subsidiary.
Investors in the private capital fund will include the FDN, with up to 20% of the total, and the remaining 80% will come from Colfondos, Old Mutual, Porvenir and Protección.
About the FDN
The Financiera de Desarrollo Nacional (national development finance agency – FDN) is a specialized, technical and independent private entity charged with mobilizing the players and resources necessary to successfully develop the country's infrastructure. Its specialization and knowledge of infrastructure and financing enable it to design solutions with sophisticated and innovative schemes and mechanisms aimed at adequately managing risks, and identifying and attracting other sources to participate in financing schemes. Through its objective of overcoming financing barriers and providing solutions, the FDN promotes efficient financing structures with the aim of obtaining competitive sources of long-term financing and mitigating the risks of refinancing.
The arrival of the IFC, Sumitomo Mitsui Banking Corporation and CAF Development Bank of Latin America as FDN shareholders bolstered the entity's independence by bringing international best practices and solid corporate governance. These investors also reinforced the FDN's technical capability by promoting financing of the country's infrastructure projects and strengthened its financial muscle by mobilizing all of the stakeholders needed to fulfill this mandate.
About CDPQ
Caisse de dépôt et placement du Québec (“CDPQ”) is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As at June 30, 2018, it held CAD308.3 billion in net assets. As one of Canada’s leading institutional fund managers, CDPQ invests globally in major financial markets, private equity, infrastructure, real estate and private debt. For more information, visit cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.
Co-investing alongside the Caisse will allow both entities to develop Colombia's infrastructure without paying huge fees to outside funds. FDN has the expertise to find the projects it wants to invest in and the Caisse is a great partner with a lot of experience in this area.
Colombia's economy is set to grow 2.6 percent this year, the central bank chief said on Thursday, a slight decrease from previous bank predictions of 2.7 percent. A friend of mine visited the country last year and was extremely impressed.
Earlier this month, the Caisse announced a deal with Brookfield Business Partners to acquire Power Solutions business from Johnson Controls:
Brookfield Business Partners L.P. (NYSE:BBU) (TSX:BBU.UN) ("Brookfield Business Partners") together with institutional partners (collectively, “Brookfield”) and Caisse de dépôt et placement du Québec (“CDPQ”), today announced that they have reached an agreement whereby Brookfield and CDPQ will acquire 100% of Johnson Controls’ Power Solutions business (“the Business”) for approximately US$13.2 billion.Earlier today, I was looking at 5-year chart of Brookfield Asset Management (BAM) with Fred Lecoq and we noted it's doing great (click on chart):
“We are excited to grow our business with the acquisition of Power Solutions, a global market leader which generates consistent cash flows and profitability,” said Cyrus Madon, CEO, Brookfield Business Partners. “We look forward to partnering with the management team to continue growing this world-class business and build on its track record of innovation.”
“We are very pleased to partner with Brookfield, that shares our vision of value creation through long-term commitment,” commented Stéphane Etroy, Executive Vice-President and Head of Private Equity at CDPQ. “This transaction enables us to acquire not only the world leader in automotive batteries, but also a model in terms of environmental and health & safety measures, that runs one of the most efficient industrial recycling systems globally.”
Business Overview
The Business produces batteries for global automakers and aftermarket distributors and retailers for use in nearly all types of vehicles, including hybrid and electrical models.
Highlights:
Market Leading Business with Strong Competitive Position. The Business is the market leader in automotive batteries, with significant global reach and market share in both original equipment manufacturers and aftermarket channels. It is well positioned to benefit from growth in demand for advanced batteries in all vehicle powertrains including electric vehicles.
Durable Business with Stable Cash Flows. The Business generates stable cash flows driven by non-cyclical aftermarket sales which comprise approximately 75% of its profit. Its position as a low-cost producer in its core markets has enabled consistent growth through business cycles.
Long-Standing Relationships with Diverse Customer Base. The Business holds long-term relationships with top-tier original equipment manufacturers and auto retailers globally, which are served by its more than 15,000 employees in 150+ countries.
Reputation for Safety, Product Quality, and Performance. Through its 100+ year history, the Business has earned a reputation for strong environmental health and safety standards, including a differentiated closed loop recycling program, and best-in-class product quality and distribution, supporting improved performance and reliability for its customers.
Funding
The transaction will be funded with approximately US$3 billion of equity and approximately US$10.2 billion of long-term debt financing.
Brookfield Business Partners expects to fund approximately 30% of the equity on closing from existing liquidity. CDPQ will commit to fund approximately 30% of the equity on closing, and the balance will be funded by other institutional partners. Prior to or following closing, a portion of Brookfield Business Partners' commitment may be syndicated to other institutional investors.
Advisors
Financing will be led by a syndicate of banks including Barclays, Credit Suisse, JPMorgan Chase, BofA Merrill Lynch, BMO Capital Markets, CIBC Capital Markets, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, RBC Capital Markets, The Bank of Nova Scotia and TD Securities, who are each (other than Barclays) also acting as financial advisors to Brookfield.
Davis Polk & Wardwell LLP is acting as lead deal counsel to Brookfield. In addition, Baker McKenzie is providing non-US legal advice, Cahill Gordon & Reindel LLP is providing compliance advice and Weil, Gotshal & Manges LLP is providing consortium advice to Brookfield. Kirkland & Ellis is acting as legal counsel to CDPQ.
Transaction Process
Closing of the transaction remains subject to customary closing conditions including regulatory approvals. Closing is expected to occur by June 30, 2019.
About Brookfield Business Partners
Brookfield Business Partners is a business services and industrials company focused on owning and operating high-quality businesses that benefit from barriers to entry and/or low production costs. Brookfield Business Partners is listed on the New York and Toronto stock exchanges. Important information may be disseminated exclusively via the website; investors should consult the site to access this information.
Brookfield Business Partners is the flagship listed business services and industrials company of Brookfield Asset Management Inc. (NYSE: BAM)(TSX: BAM.A)(EURONEXT: BAMA), a leading global alternative asset manager with more than US$300 billion of assets under management.
About Caisse de dépôt et placement du Québec
Caisse de dépôt et placement du Québec (CDPQ) is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As at June 30, 2018, it held CA$308.3 billion in net assets. As one of Canada's leading institutional fund managers, CDPQ invests globally in major financial markets, private equity, infrastructure, real estate and private debt. For more information, visit cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.
Fred told me he met Bruce Flatt, Brookfield's CEO and billionaire toll collector of the 21st century and he's a "very sharp guy."
I'm sure he is and the other thing Brookfield does is invest in infrastructure all over the world including Latin America. Don't be surprised if it partners up with the Caisse and FDN on some deals (for those of you who don't know, Brookfield is the best infrastructure investor in the world).
What else? The Caisse just announced that it is taking an equity interest totalling $200 million in Plusgrade, a leading provider of revenue solutions to the global travel industry. The transaction values Plusgrade at over CA$600 million:
With this backing, the company will continue to execute its expansion plan, which includes penetrating new international markets and expanding its suite of products. Since its founding in Montréal in 2009, Plusgrade has become one of the fastest growing technology companies, and was ranked in Deloitte’s Canadian Technology Fast 50 list in 2016 and 2017. Recently, it also received the Deloitte Technology Fast 50 Leadership award, which recognizes the innovation and leadership of companies at the forefront of the Canadian technology sector.If you want to know why Montreal's economy is thriving, look no further than to innovative tech companies like Plusgrade.
Led by a solid management team, Plusgrade is rapidly expanding its team across its Montréal headquarters and its New York and Singapore offices.
Over 70 travel companies worldwide, including Air Canada, Lufthansa and Singapore Airlines, trust Plusgrade to deliver key revenue streams via software solutions for optimizing their seat inventory. Its signature product provides travellers with an opportunity to bid on upgrades to a superior class of service.
“Plusgrade has a unique and innovative business model that is revolutionizing practices in its industry. Meeting an airline industry need, their products have been quickly marketed around the world in the last few years,” stated Mathieu Gauvin, Senior Vice-President, Québec, at la Caisse. “This investment is aligned with our strategy of supporting the growth of Québec companies that prioritize innovation to drive their international development.”
In the context of this transaction, la Caisse acquired a portion of the shares held by TA Associates, a leading global growth private equity firm that will continue to be a major shareholder, alongside the management team and other investors.
"We are very excited to welcome la Caisse as our new institutional investment partner as we accelerate our growth into new markets and verticals," said Ken Harris, Founder and CEO, Plusgrade. "The confidence that la Caisse and TA Associates have shown in Plusgrade is a testament to the value that our talented team is delivering across our global footprint of travel suppliers. We look forward to la Caisse joining our Board and providing valuable guidance as we pursue our strategic growth initiatives."
Morgan Stanley Canada Limited served as financial advisor and Davies Ward Phillips & Vineberg LLP served as legal counsel to Plusgrade. Osler, Hoskin & Harcourt LLP served as legal counsel to la Caisse.
ABOUT PLUSGRADE
Plusgrade is an award-winning technology company at the forefront of ancillary revenue and merchandising in the global travel industry. As the market-leading provider in its category of upsell solutions, Plusgrade is generating billions of dollars of new revenue opportunity and powering leading travel suppliers in more than 50 countries. Plusgrade is headquartered in Montréal with offices in New York and Singapore. For more information, please visit www.plusgrade.com.
Unlike other large Canadian pensions, the Caisse has a dual mandate to maximize returns and invest in Quebec's economy.
That leaves me with a final thought. Michel Girard of Le Journal de Montréal, the same journalist who criticized Quebec's government for "wasting $4 billion on the Caisse's train," is back at it today with a new article, Sommes-nous les dindons de la farce? ("Are we the turkeys of the farce?").
In it, he criticizes the Caisse, l’Agence métropolitaine de transport (AMT) and VIA Rail for not doing enough to support the local economy by ordering their trains from Bombardier, a local company.
It never occurred to this guy that maybe the problem is Bombardier isn't competitive enough and wasn't able to compete to win those mandates which went through a rigorous tender process.
On one hand he talks about wasting taxpayers' money and on the other he wants the Caisse and other agencies to just order from Bombardier no matter the cost.
Well, I have news for Michel Girard, the people working at the Caisse, AMT and VIA Rail aren't turkeys who will just hand over money to Bombardier without a tender process.
I note the Caisse and and the Fédération professionnelle des journalistes du Québec (FPJQ) just announced the creation of the Fonds CDPQ pour la relève journalistique, an initiative that will provide ten young journalists or students each year with a $10,000 bursary enabling them to take a paid three to four month internship with a Québec media outlet.
Maybe they can teach these aspiring journalists the value of good old-fashion investigative journalism which isn't blatantly biased or full of disinformation (Trump is right about "Fake News" but it's fake and pathetic on all sides).
Lastly, I note Michael Sabia is at the G20 conference where he stated: "We should be investing in infrastructure that contributes to a lower-carbon economy. Too many investors still see climate change as a constraint. It’s not – it’s an opportunity. It’s time to turn the telescope around and think differently."
"We should be investing in infrastructure that contributes to a lower-carbon economy. Too many investors still see climate change as a constraint. It’s not – it’s an opportunity. It’s time to turn the telescope around and think differently." M. Sabia, CEO @LaCDPQ #G20Argentina pic.twitter.com/P8YVIexYbd— CDPQ (@LaCDPQ) November 29, 2018
He must have attended OPTrust's climate change symposium last week.
Below, Caisse de Depot et Placement du Quebec Chief Executive Officer Michael Sabia discusses the importance of continuing multilateral negotiations ahead of the Group of 20 summit in Buenos Aires. He speaks with Bloomberg's Erik Schatzker on "Bloomberg Markets: The Close."
And the Venezuelan exodus is already having a deep impact on Colombia's economy. The arrival of more than a million new people is putting short-term pressure on the economy but it could also be a long-term boon for the nation, according to a new report. See the details here.
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