Essan & Essco concessions sold
- From: Vol 4, Issue 12 (December 2003)
- Category: General
- Region: Americas
- Country: Chile
- Related Companies: Aguas Andinas, Aguas de Barcelona, Banco Bilbao Vizcaya Argentaria, Banco de Chile, Banco Santander, Canal de Isabel II, Esval, FCC, Inmobiliera Punta de Rieles, Ondeo/Suez, Proactiva, Sacyr, Saur/Bouygues and Veolia
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Chile continued the trend of awarding deals to local companies last month.
Two of the four 30-year concessions to supply water and sewerage services in the north of Chile were sold to private investors last month. The government accepted offers for Essan, the company which operates the second region concession, from the local Inmobiliaria Punta de Rieles and for Essco, which has the fourth region concession, from neighbouring company Esval.
A total of nine offers were received by the mid-November deadline, with Essco – the largest company in terms of customers – attracting the most interest. Esval’s winning bid for the concession was just over $85 million and trumped offers from the Anglo/Dutch Cascal, a Spanish consortium of Canal de Isabel II and Sacyr, and Proactiva (the joint venture between Veolia and Spain’s Grupo FCC). The Canal/Sacyr consortium also made a separate, joint offer for Essco and Essat (see table below).
Bids for Essan
Essan, the largest of the four companies on a revenue basis, drew a single bid from Punta de Rieles, part of the powerful Luksic Group. Luksic’s holdings include FTSE-quoted copper mining group Antofagasta and NYSE-listed Banco de Chile.
Luksic’s willingness to pay slightly over $185 million for Essan is almost certainly related to its goal of ensuring reliable water supplies for its extensive mining operations in the Antofagasta region.
As well as the concession for domestic water and sewerage services, Essan serves large mining firms by supplying bulk water and has signed option agreements to provide water for two big projects: La Tirana and Compania Minera Riochilex. These projects are thought to require around 195 litres/sec, or 16,850m3/d, of water.
Of the nine groups qualified to bid for the four concessions, two – Ondeo/Agbar subsidiary Aguas Andinas and Saur – did not submit offers.
Although international private water companies already have a strong presence in Chile, one industry executive said this reflected dwindling levels of interest in international markets. “This has not just affected Chile, it is a global trend”, he said. “The withdrawal of international companies leaves a vacuum for the increasing number of local and regional players”.
Other local companies to feature prominently in the bidding process included engineering and construction groups Besalco, Con-Pax and Icafal. Additionally, the majority 49.8% stake in Esval, which operates the fifth region concession, was transferred to Chilean interests in October (see GWI, Vol. 4, Issue 11, p7).
“International players in the water industry are looking for less capital intensive opportunities. They also lack the necessary knowledge of the local market, both in the water and financial sector, which is affecting their decisions”, said Mauricio Fuenzalida of Banco Bilbao Vizcaya Argentaria (BBVA), which is advising the Chilean government on the transaction.
“As a consequence, and according to our calculations following the result of the Essco concession, the return on equity required by international companies is around 5% higher than local players”.
Offers for Essat, which operates the first region concession, and Emssat, which has the third region concession, were not accepted. However, the government decided that there was sufficient interest from private investors for another round of bidding. Second offers for the two state companies will either be invited later this month (around 17 December) or at the end of January 2004.
The payment date for Essan and Essco is 22 December. Esval is thought to be seeking a bridging loan from local banks to finance the purchase of Essco. The lead arranger is expected to be Banco Santander. Punta de Rieles will fund the acquisition of Essan with cash and a bilateral loan.
The bidding rules state that the investors must create a special purpose vehicle (SPV) to effect the transfer of concession rights. The SPV has a maximum debt to equity ratio of 70:30.