OTPP Acquires Brazilian Electricity Firm Evoltz from TPG

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IPE reports Ontario Teachers to buy Brazilian electricity firm Evoltz from TPG:

Ontario Teachers’ Pension Plan Board is buying an electricity transmission platform in Brazil from TPG.

Ontario Teachers has agreed to buy Evoltz Participações from the global alternative asset manager for an undisclosed sum.

Founded by TPG in 2018, Evoltz consists of seven electricity transmission lines that total more than 3,500km across 10 states in Brazil.

Dale Burgess, senior managing director, infrastructure and natural resources at Ontario Teachers, said: “Evoltz is a highly attractive portfolio of power transmission concessions that provides reliable power to businesses and consumers across Brazil.

“Our strategy focuses on allocating significant capital to high-quality core infrastructure assets with lower risks and stable inflation-linked cash flows. Electricity transmission businesses are particularly attractive given their importance in facilitating a transition to a low-carbon economy.”

Ontario Teachers is already invested in regulated electricity transmission and distribution businesses, as well as the broader energy sector. Earlier this year, the C$221.2bn (€150.5bn) Canadian fund acquired a 40%  stake in Finnish electricity company Caruna. It has also been active in Chile’s transmission and distribution sector for over 12 years through a 50% stake in Saesa.

Edward Beckley, partner at TPG, said: “Since founding Evoltz three years ago with the acquisition of seven transmission assets from judicial recovery, we have been proud to work with management to turn-around the prospects for Evoltz and establish it as a leading independent operator in Brazil’s energy transmission sector.

“Today, having expanded and consolidated its operations, Evoltz plays an important role in delivering green, renewable energy to major cities and population centres across the country. We look forward to its next chapter under Ontario Teachers’ leadership.”

OTPP put out a press release on this deal earlier today:

Ontario Teachers' Pension Plan Board ("Ontario Teachers’") is pleased to announce that it has entered into a definitive agreement with TPG, a global alternative asset firm, to acquire a 100 percent interest in Evoltz Participações S.A. (“Evoltz”), a leading electricity transmission platform in Brazil. Founded by TPG in 2018, Evoltz consists of seven electricity transmission lines that total more than 3,500km across 10 states in Brazil.

“Evoltz is a highly attractive portfolio of power transmission concessions that provides reliable power to businesses and consumers across Brazil,” said Dale Burgess, Senior Managing Director, Infrastructure & Natural Resources at Ontario Teachers’. “Our strategy focuses on allocating significant capital to high-quality core infrastructure assets with lower risks and stable inflation-linked cash flows. Electricity transmission businesses are particularly attractive given their importance in facilitating a transition to a low-carbon economy.”

Ontario Teachers’ has extensive experience investing in regulated electricity transmission and distribution businesses, as well as the broader energy sector. Earlier this year, Ontario Teachers’ acquired a 40 percent stake in Caruna, Finland’s largest electricity distribution company. It has been active in Chile’s transmission and distribution sector for over 12 years through a 50% stake in Saesa. The acquisition of Evoltz represents a significant infrastructure investment adding to Ontario Teachers’ portfolio of high-quality investments in Brazil and across Latin America.

“Since founding Evoltz three years ago with the acquisition of seven transmission assets from judicial recovery, we have been proud to work with management to turn-around the prospects for Evoltz and establish it as a leading independent operator in Brazil’s energy transmission sector,” said Edward Beckley, Partner at TPG. “Today, having expanded and consolidated its operations, Evoltz plays an important role in delivering green, renewable energy to major cities and population centers across the country. We look forward to its next chapter under Ontario Teachers’ leadership.”

“I would like to take this opportunity to thank TPG, our board of directors, and employees for the hard work and support in building and transforming Evoltz into a leading operational electricity transmission company,” said João Nogueira Batista, CEO of Evoltz. “We are pleased to welcome Ontario Teachers’ as our new shareholder and are excited to work with them to drive the company to new heights.”

The transaction is expected to close in the third quarter of 2021 and is subject to customary closing conditions and regulatory approvals.

About Ontario Teachers’
The Ontario Teachers' Pension Plan Board (Ontario Teachers') is the administrator of Canada's largest single-profession pension plan, with C$221.2 billion in net assets (all figures at December 31, 2020). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.6% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region offices are located in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 331,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

About TPG
TPG is a leading global alternative asset firm founded in 1992 with more than $91 billion of assets under management and offices in Beijing, Fort Worth, Hong Kong, London, Luxembourg, Melbourne, Mumbai, New York, San Francisco, Seoul, Singapore, and Washington, DC. TPG’s investment platforms are across a wide range of asset classes, including private equity, growth equity, impact investing, real estate, secondaries, and public equity. TPG aims to build dynamic products and options for its investors while also instituting discipline and operational excellence across the investment strategy and performance of its portfolio. For more information, visit www.tpg.com or @TPG on Twitter.

About Evoltz
Founded in 2018, Evoltz operates and maintains 3,561 km of electricity transmission lines that cross ten Brazilian states and are distributed into seven concessions (Manaus Transmissora de Energia, Norte Brasil Transmissora de Energia, Evoltz IV, Evoltz V, Evoltz VI, Evoltz VII and Evoltz VIII). Based out of its headquarters and operational center in Rio de Janeiro, Evoltz is a holding company with end-to-end management of its concessions, leveraging cutting-edge technology and best practices within the electricity transmission sector. Learn more at: www.evoltz.com.br.

This is another big electricity transmission deal for Ontario Teachers' Pension Plan (OTPP).

Back in March, I covered how OTPP is investing in Finland's power grid, as it, AMF and KKR acquired a big stake in Caruna, Finland’s largest electricity distribution company.

As the press release states, OTPP has been active in Chile’s transmission and distribution sector for over 12 years through a 50% stake in Saesa. 

The acquisition of Evoltz represents a significant infrastructure investment adding to OTPP's portfolio of high-quality investments in Brazil and across Latin America.

Dale Burgess, Senior Managing Director, Infrastructure & Natural Resources at OTPP explains it very well: "Our strategy focuses on allocating significant capital to high-quality core infrastructure assets with lower risks and stable inflation-linked cash flows. Electricity transmission businesses are particularly attractive given their importance in facilitating a transition to a low-carbon economy.”

Remember, OTPP has committed to achieving net zero emissions by 2050. 

As such, expanding its global electricity transmission assets makes perfect sense as it can lower its carbon footprint and deliver on its mandate.

As Dale states, electricity transmission is part of high-quality core infrastructure assets with lower risks and stable inflation-linked cash flows, so you're not going for huge returns but rather a yield that offers a decent but stable premium over bonds with some inflation protection (they are regulated assets and tariffs are set based on a specific country's inflation).

OTPP's partner, TPG, founded Evoltz in 2018 and it now consists of seven electricity transmission lines that total more than 3,500km across 10 states in Brazil.

Here is a brief history of the company from its website: 

Evoltz is born in 2018, a company created by TPG Capital aimed at gathering the operational transmission assets acquired in the judicial recovery process of Abengoa in Brazil. The assets consist of seven transmission lines, totaling 3,561 km and crossing 10 states in Brazil.They represent an essential investment in the infrastructure segment by the Managing Company.

Evoltz, a holding company with a majority interest in 7 companies, 4 of which are subsidiaries and 3 are joint ventures, each of which holds public electricity service concessions, is in a corporate, financial and operational restructuring process, which includes the development of a new business plan and a long-term growing strategy with important advances to consolidate its presence in the transmission sector.

In 2019, it was consolidated with a platform capable of receiving any investment resulting from the restructuring of its organizational and administrative structure. Still in line with the restructuring process, it concluded the acquisition of 50% of the shares of one of its joint ventures, ATE VIII Transmissora de Energia S.A., held by Empresa Brasileira de Desenvolvimento e Participações Ltda. - EMBRADE.

In 2020 in accordance with the Competitive Disposal Procedure settled by Eletrobras in 2019, the Eletrobras Board of Directors approved the binding offer made by Evoltz to acquire Eletrobras' interest for the acquisition price of R$ 232 million. On April 28, 2020, a share purchase agreement and other covenants were signed between the Company and Centrais Elétricas Brasileiras S.A. - Eletrobras considering the aforementioned price. As a result, Evoltz Participações S.A. now holds 100% of the shares of Manaus Transmissora de Energia S.A.

Those of you who read Portuguese can view a corporate presentation here.

OTPP took a 100% stake, meaning it now has full control of the company and will take seats on its board.

No doubt, it will work with current management to expand its footprint in Brazil.  

In terms of its overall portfolio, take a look at this section on infrastructure from OTPP's 2020 Annual Report:


Infrastructure assets represent roughly 8% of total assets but they are expanding and diversifying this portfolio as OTPP already has significant stakes in airports, toll roads and ports (58% in transportation infrastructure) and post-pandemic, they are looking for more stable high quality assets which offer stable returns and are more in line with their sustainable investing targets.

Let me end by giving credit to OTPP's Latin America Infrastructure team headed by Stacey Purcell for putting this deal together, very well done.


Also, before I forget, OTPP's President and CEO, Jo Taylor, spoke at the FT Global Boardroom online event last week on the climate challenge. You can watch a clip from the event below:

I am trying to find the full interview online so if anyone has it, please share.

Below, a clip from two years ago on how an 800kV ultra-high-voltage (UHV) power transmission project, build by the Brazil subsidiary of the State Grid Corporation of China, has benefited local people a lot by sending electricity to remote areas and creating jobs. 

As you can see, it's not only OTPP looking to invest in Brazil's electricity transmission business.

Also, watch this interesting clip on where the Brazilian electricity sector is heading. Clearly there are a lot of opportunities in this sector over the long run and OTPP is now well positioned to benefit from the ongoing changes in this sector.

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