China Three Gorges has to pay 219 million to maintain its influence in EDP

EDP will ask shareholders to reinforce the investment through a capital increase of around one billion euros. Just a year after a failed takeover bid, the largest shareholder, China Three Gorges (CTG) will have to pay 220 million euros if it does not want to see its stake diluted.

The electric company (temporarily) led by Miguel Stilwell d’Andrade announced on Wednesday that it will carry out a capital increase – the first since 2004 – of 1,020 million euros to finance the acquisition of Viesgo’s business in Spain.

The public offering of 309,143,297 new shares (approximately 8.45% of the capital) is reserved for shareholders and other investors who acquire subscription rights. The subscription price for each new share is 3.30 euros, which represents a 23% discount compared to the closing price of the shares at the last session before the announcement.

If China Three Gorges wants to maintain its 21.47% stake, it will have to buy almost 66.4 million shares, which implies a 219 million euros investment.

The capital increase takes place one year after the end of the takeover bid, in which the Chinese state-owned company tried to take over the entire electric company. Since then, Chinese shareholders have reduced the stake in the company to 21.47% (compared to 28.25% previously). Even so, the manager who is replacing António Mexia signalled that (at least) there will be no opposition from China Three Gorges to the capital increase.

Asked at a conference call with analysts after the announcement to the market about the subscription prospect, especially by China Three Gorges, the new CEO Miguel Stilwell d’Andrade reminded that he cannot answer for the shareholders, but said CTG is present in the supervisory board that has already given the green light to the operation. “You can draw your conclusions from that,” he told the analysts.

As for other shareholders, the largest percentage of capital is dispersed among investors with minority positions. If all the other shareholders on the stock exchange (representing 52.33% of the total) increase their stakes, they could represent 533.87 million euros of the total operation. Oppidum Capital would have to invest 73.4 million euros and BlackRock around 46 million euros. The other investors with qualified stakes would have to put between 30 and 20 million euros to avoid seeing them diluted in the capital increase.

Even if the shareholders do not monitor the operation, success is guaranteed. Stilwell d’Andrade explained that EDP has an agreement with a banking syndicate for them to subscribe to all the shares in case the operation is not successful. BCP, JP Morgan, Morgan Stanley, BNP Paribas, Bank of America and Goldman Sachs are the underwriters.

There is, however, no date yet for the operation to proceed. “EDP intends to start issuing shares as soon as possible, after receiving approval from the Securities Market Commission (CMVM), and publication of a notice for the exercise of subscription rights and a prospectus, under the applicable law,” explained the Portuguese company in a statement sent to the market on Wednesday.

Once the request for a prospectus valuation has been filed with the CMVM, the supervisor has ten working days to respond, and if further information is required this period is suspended. Until the conclusion of the capital increase, EDP will not present quarterly results to the market, having postponed the disclosure of accounts for the second quarter of the year to September 3.