GENERAL

Transelec

Lead consortium of four Canadian pension funds to acquire Chile’s backbone transmission grid

Please note this investment was executed during prior employment of a Reinova Co-Founder

Brookfield led a consortium of four Canadian pension funds that invested $1.55B to acquire 100% of Transelec, the operator of the back-bone transmission system in Chile

Brookfield led a consortium of four Canadian pension funds that invested $1.55B to acquire 100% of Transelec, the operator of the back-bone transmission system in Chile

Acquisition of a regulated, transmission business with very attractive regulatory framework and significant growth prospects
Monopoly transmission system which serves ~98% of country that earned a 10% unlevered, real return that is stipulated. in law and generates very stable cashflow
Opportunity to invest in accretive upgrades (proprietary projects) and expansions (competitive projects) of the system, a significant amount of which were driven by the build-out of renewable power in the country

Invested in Chile before other infrastructure investors began targeting the market and bidding up valuations
Acquired asset in a jurisdiction with an investment grade sovereign rating and significant constitutional protections for foreign capital as well as an impartial dispute resolution system
Transelec’s revenue and EBITDA are a combination of UF (inflation linked Chilean Peso) and USD, based upon the composition of its rate base
Through local currency financing, created a dollarized dividend stream at significant discount to the valuations of equivalent assets in US market

Rebuilt management team as C-suite at time of acquisition were seconded from the seller, Hydro Quebec
Executed, investment-grade, local currency, inflation-linked financing to effectively dollarize dividend stream and produce attractive current yield with inflationary growth
Achieved commercial operation of a portfolio of upgrades to Transelec’s existing system that were allocated to Transelec and earned the 10% unlevered, real statutory rate of return
Competed for and won a number of projects that were expansions to Transelec’s existing systems at returns accretive to Transelec’s base case return

Transelec was a balance sheet investment with no set time horizon to exit
Brookfield took advantage of opportunity to sell its stake for a very attractive price as China Southern Power Grid was looking to expand in South America and wanted to acquire a marquee asset
To recycle capital into higher returning opportunities, Brookfield sold its 28% stake in 2018 for $1.3B, while its partners decided to maintain their ownership position