To Buy Gas Pipelines From Petrobras, Engie and CDPQ Are Raising Loans With Brazilian Banks

Brazilian Banks Itaú Unibanco, Banco do Brasil and Bradesco Must Grant Loans of Up to US $ 8 Billion to Help Finance the Purchase of TAG, Owned by Petrobras

The French electric utility Engie and the Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) are raising a loan of up to US $ 8 billion to support the purchase of a gas pipeline system from Petrobras, sources said.

Engie and CDPQ are in talks with at least eight international banks, including BNP Paribas, Mizuho, and Sumitomo Bank. Brazilian banks Itaú Unibanco, Banco do Brasil, and Bradesco are also expected to commit to the financing, the sources said.

The financing package for the pipeline unit of Transportadora Associada de Gás (TAG) is expected to have a term of eight to ten years and will likely be elevated to the level of the target company.

Loans for Latin American companies typically have maturities of three to five years, and longer maturities indicate confidence in creditworthiness, the sources said.

Petrobras was in exclusive negotiations with Engie and CDPQ regarding the sale of TAG last year before the sale was halted by a ruling from Brazil’s Supreme Court in July, which required Congress to approve the sale of any state asset.

The Attorney General of Brazil revoked the ruling in early January, allowing Petrobras to reopen the bidding for potential buyers interested in purchasing TAG.

Before the ruling, Engie and CDPQ submitted the highest bid for TAG, which operates natural gas pipelines in northern and northeastern Brazil.

Other consortiums that also expressed interest in the assets included a group formed by EIG Global Energy Partners and the sovereign wealth fund Mubadala from the United Arab Emirates, and a group consisting of Australian investor Macquarie, Singapore sovereign fund GIC, and Canada Pension Plan Investment Board (CPPIB), sources previously informed LPC.

Engie, CDPQ, Petrobras, and the banks declined to comment or could not be immediately reached for comment on the matter.

Divestments in Gas Assets

The CEO of Petrobras, Roberto Castello Branco, is expected to advance divestment and partnership opportunities in the distribution and natural gas businesses after taking over from Ivan Monteiro in January.

Petrobras is expected to become the largest oil and gas company in South America by 2025, according to data from GlobalData.

Castello Branco will also prioritize investments in exploration and production segments of oil and gas in deep waters, which are more profitable.

The Brazilian oil giant is estimated to need approximately US $ 49.4 billion over the next six years for nearly 40 project opportunities, the data and analytics firm GlobalData said in a report on January 22.

“Petrobras’s planned and announced projects have mainly focused on production projects and refineries”, said Soorya Tejomoortula, oil and gas analyst at GlobalData.

The company’s exit from natural gas distribution began taking shape in September 2016, when it sold Nova Transportadora do Sudeste (NTS), a pipeline operator in southern and southeastern Brazil, for US $ 5.2 billion to a group composed of Canadian and British investors, Columbia Investment Management Corp, as well as Singapore’s GIC and China Investment Corp.

Petrobras’s most recent five-year investment plan, released on December 5, aims to raise nearly US $ 27 billion from divestments and partnerships.

The proceeds from asset sales will be directed towards reducing Petrobras’s debt burden, which is considered one of the largest among oil and gas companies.

Net debt was approximately 291.8 billion (US $ 77.5 billion) in reais at the end of the third quarter, Petrobras said in its quarterly results presentation.