Grupo BTG Pactual, the Brazilian bank led by billionaire Andre Esteves, is seeking private-equity investments in Portugal and Spain as Europe’s debt crisis forces governments there to sell assets, a person with direct knowledge of the matter said.
BTG, Brazil’s fifth-largest bank by market value, wants to diversify its investments beyond Latin America and is looking in particular at infrastructure deals in the Iberian peninsula, said the person, who asked not to be identified because the plans aren’t public.
Spain and Portugal are raising money from asset sales after their economies contracted during Europe’s credit crisis and they struggled to meet deficit targets. BTG has invested in two deals in the region totaling about 1.4 billion euros ($1.8 billion) as it seeks out projects that are already operating and generating cash, the person said.
“BTG is buying very cheap infrastructure assets in Spain and Portugal at the perfect time,” said Alexandre Chaia, a finance professor at the Insper business school in Sao Paulo. “The governments there are desperate to obtain investments to help solve their budget problems and at the same time keep the companies operating to avoid more unemployment.”
BTG and a group of investors including Acciona SA, a renewable energy and water provider, won the concession in November to manage two desalination plants and a water supply system for the city of Barcelona for 50 years, a project that totaled more than 1 billion euros. In December, BTG and Abertis Infraestructuras SA reached a 430-million euro agreement with the Catalonian government to operate and maintain the Vallvidrera and Cadi tunnels for 25 years.
BTG Pactual also bid jointly with Flughafen Zurich AG, Global Infrastructure Management LLC and CCR SA for the Portuguese airport manager ANA - Aeroportos de Portugal. The French group Vinci SA offered 3.1 billion euros and won the concession in December.
“The big risk for BTG would be if Portugal and Spain perform worse than they planned and the demand for water or the Barcelona tunnels is lower than planned,” Chaia at the Insper school said.
A BTG official declined to comment on the bank’s strategy in Portugal and Spain.
BTG’s success in diversifying its geographic risks helped it “deliver one of the highest annual ROEs in history despite a weak Brazilian economy,” Mario Pierry, an analyst at Deutsche Bank AG, said in a report, referring to the bank’s almost 30 percent 2012 return on equity, a gauge of profitability.
BTG’s net profit rose to 3.26 billion reais in 2012, a 69 percent increase from a year earlier. Total revenue climbed to 6.82 billion reais in 2012 from 3.2 billion in 2011. The bank’s shares gained 6.4 percent this year through yesterday, compared with a 10 percent drop for the benchmark Bovespa index. They fell 3.7 percent at 12:59 p.m. in Sao Paulo, to 31.77 reais.
Money managers including Carlyle Group LP and KKR & Co. are also pursuing infrastructure investments in Europe. Carlyle, the second-biggest private-equity firm, raised $1.38 billion in November for energy credit investments, while KKR, run by buyout pioneers Henry Kravis and George Roberts, got more than $1 billion in June for its first infrastructure fund.
KKR is seeking annual returns of 10 percent to 15 percent, the company said in December. A Carlyle official said European banks have been unable to meet the financing needs of small energy and power companies.
BlackRock Inc., the world’s biggest fund manager with $3.67 trillion in assets, hired a team from Blackstone Group LP in November to start its first European investment advisory unit for the industry. Philippe Benaroya, a BlackRock managing director, said infrastructure lending has become a “mainstream asset class.”
BTG and other private-equity firms are entering the market as banks cut lending to prepare for new rules that require them to boost their capital. Loans to projects in Europe, the Middle East and Africa fell to $38 billion in 2012 from $82 billion in 2011 and $156 billion in 2007, according to Infrastructure Journal data. That compares with a drop in global lending to $111 billion, from $205 billion a year ago and $264 billion in 2007, the data show.
Warren Buffett’s Berkshire Hathaway Inc. also invested in the region, agreeing in November to pay 600 million euros to reinsure a book of individual life policies at CaixaBank SA, Spain’s third-biggest lender, the bank said in November.