This content is from: Local Insights

Brazil

Latin America-Brazilian natural gas company sold at a premium of 119%

The privatization of Comgás, a Brazilian gas company located in the State of São Paulo sold at public auction on April 14, was the most successful to date in the gas industry. The consortium Integral Holdings, composed of British Gas (95%) and Shell Brasil (5%), paid R$ 1.652 billion ($980 million), at a premium of 119% over the minimum stipulated auction price. The consortium now controls 70% of Comgás voting capital.

The gas sector represents only 2% of the Brazilian energy market, though it is expected to increase to around 12% over the next eight to 10 years. Investments this year and next are anticipated to exceed the minimum stipulated in the public bid, $70 million and $47 million respectively.

British Gas is already involved in gas operations in Latin America, most notably with a 10% stake in the Petrobrás partnership in the Brazil-Bolivia pipeline project, as well as various other investments in Bolivia and an investment of $ 270 million in Metrogas, the Argentine natural gas supplier. One of the principal aims of British Gas and the reason it was prepared to pay such a high premium to secure Comgás is to exploit the concept of a combined energy package of gas and electric energy. It is envisaged that gas will be used to produce electricity in cases of emergency and when the water level of electricity generating dams is low. Conversely, when the hydroelectric companies are generating electricity in abundance, gas will be diverted to client companies. British Gas is considered a pioneer in this technology which is now well accepted in Brazil.

elecommunications

The second company to operate with fixed telephony in the State of São Paulo was sold by auction on April 23 1999. Two consortiums participated in the auction: Rio de la Plata, composed of Uruguayan and Argentinean companies, and Megatel whose most important partners are Bell Canada (34.4%), WLL Consortium (34.4%), Qualcomm Incorporated (16.2%), SLI Wireless (16.2%) and Taquari Participações (2.5%). Both competitors offered identical financial proposals (R$ 70 billion). However, Megatel made a better technical proposal and won the bid.

Megatel's initial investments in the company are estimated to reach $2 billion. The company will install at least 3.2 pieces of machinery per 100 inhabitants by the end of this year. Further, Megatel has announced it will install fixed cellular phones using CDMA technology with Brazil pioneering the use of this system in Latin America. And a great part of the equipment necessary to implement the fixed cellular telephony can be produced in the country. Qualcomm is also enlarging its industry in Brazil, doubling its current production of 300 thousand cellular telephones per year.

Reinsurance

The Brazilian Reinsurance Institute (IRB) will be privatized in August. The minimum price and precise date of the auction will be defined by the National Denationalization Council on May 26, when the regulation of the sector is scheduled to be complete.

Brazil will sell 100% of the ordinary shares of IRB, representing 50% of the company's capital. All consortia that participate in the privatization of the Institute must be composed of at least one insurance or reinsurance company, and cash payment is required. A special offer shall also be made to employees interested in purchasing company shares.

Foreign insurance companies established in Brazil are already investing in the industry. Nine new members have joined the National Insurance Foundation which has invested close to R$6 million in publicity anticipating market growth.

RESTRICTIONS ON FOREIGN INTERBANK LOANS LIFTED

Under Resolutions 63 and 2.483, issued by the National Monetary Council on August 21 1967 and March 26 1998, respectively, Brazilian banks can borrow money from abroad for relending to Brazilian companies of the rural sector. Previously, banks were required to transfer resources to the final borrower on the same day, or the central bank would collect the money with no remuneration to the respective bank. On April 22 1999 the central bank issued Circular 2.882 allowing Brazilian banks to invest resources in government bonds before relending. Further, the loan may now be transferred in Brazil from bank to bank, until receipt of the loan by a final borrower.

Instant access to all of our content. Membership Options | One Week Trial