China Development Bank provides a €1.6 billion EUR loan to China Three Gorges Corporation for its acquisition of a 21.35% equity stake in EDP – Energias de Portugal (Linked to Record ID#104094 and #104095)

Project narrative

In April 2011, as a consequence of the eurozone debt crisis, Portugal requested a bailout from the European Union (EU). The EU, the European Central Bank (ECB), and the International Monetary Fund (IMF), in turn, entered into a €78 billion EUR bailout agreement ("Economic Adjustment Programme for Portugal") with the Government of Portugal, which agreed to sell portions of its ownership stakes in several assets, including EDP – Energias de Portugal, S.A. — a Portuguese electricity utilities company headquartered in Lisbon — as part of the bailout agreement. The Government of Portugal launched an auction for the stake, gaining bids from six companies in the first round: E.ON, Germany's largest electric utility company; Centrais Elétricas Brasileiras (Eletrobras), a Brazilian state-owned power company; Companhia Energética de Minas Gerais S.A. (CEMIG), a a Brazilian state-owned energy company; Aditya Birla Group, an Indian conglomerate; Marubeni Corporation, a Japanese general trading company; and China Three Gorges Corporation (CTG), a Chinese wholly state-owned power company. CTG submitted its first bid on October 21, 2011. Birla and Marubeni were eliminated by the Portuguese cabinet; on November 11, 2011, the Portuguese Government invited CTG, E.ON, and Eletrobras to participate in its second round of bidding. Bidding required each bidder to submit a detailed and binding industrial plan, a specific corporate governance plan for EDP, and a plan on how they planned to contribute to Portugal's economic development. German Chancellor Angela Merkel publicly called upon Portugal to sell to E.ON, while Brazilian President Dilma Rousseff signed a special decree to amend the internal charter of the Brazilian policy bank, authorizing National Bank for Economic and Social Development (BNDES) to provide financing to Eletrobras to support its bid for the EDP shares. Reports in the Portuguese media about Merkel pushing for E.ON lead to to a spike in unpopularity for the country amidst Portuguese public opinion, and demands from Portugal's opposition party to be impartial. Meanwhile, the CTG bid also drew concerns about Chinese companies endangering Portugal's economic security as well as the uncertainty of approvals, though CTG attempted to explain them. On December 9, 2011, CTG submitted its second round bid ID#203098}}. CTG's bid of €2.69 billion EUR ($3.5 billion USD) represented a 53% premium to EDP's share price, at a purchase price of €3.45 EUR per share, higher than E.ON's bid of €3.25 EUR and Eletrobras's €3.28 EUR. Then, on December 22, 2011, the Government of Portugal announced that China Three Gorges Corporation had won the bidding for the 21.35% stake in EDP. EDP's executive board of directors approved the deal. On December 30, 2011, CTG entered into Strategic Direct Sale Agreement with Parpública – Participações Públicas (SGPS), S.A. — a wholly Portuguese state-owned holding company — for the acquisition of 780,633,782 ordinary shares of EDP, representing 21.35% of EDP's issued share capital and respective voting rights. China Three Gorges International (Europe), S.A. (CTGI Europe) (later renamed China Three Gorges (Europe), S.A.) — a Luxembourg-incorporated special purpose vehicle (SPV) and wholly-owned subsidiary of China Three Gorges International (Hong Kong) Company Limited (CTGI HK) (later renamed as CWEI (Hong Kong) Co. Ltd. and then China Three Gorges (Hong Kong) Co. Ltd.), itself a wholly-owned subsidiary of China Three Gorges Corporation International Investment Co., Ltd. (later renamed as CWE Investment Co. Ltd. and then China Three Gorges International Corporation (CTGI)), which is wholly owned by China Three Gorges Corporation — was the specific acquiring entity of the EDP shares. In or around December 2011, China Development Bank Corporation (CDB) issued a €1.6 billion loan to CTG to support its €2.69 billion EUR acquisition of a 21.35% equity stake in EDP. This loan reportedly carried a maturity period of 20 years. Record ID#104054 captures the CDB loan. Additionally, in 2012 the Industrial and Commercial Bank of China (ICBC) issued a $500 million USD loan to CTG to facilitate its €2.69 billion EUR acquisition of the 21.35% stake in EDP. Record ID#104094 captures the ICBC loan. Furthermore, in or around 2012, the Bank of China (Hong Kong) Limited (BOCHK) entered into a $300 million USD term loan facility with China Three Gorges International (Hong Kong) Company Limited (CTGI HK) to facilitate the €2.69 billion EUR acquisition of the 21.35% stake in EDP. Record ID#104095 captures the BOCHK loan. As part of its bid, CTG agreed to arrange a €2 billion EUR long-term revolving credit facility (RCF) from a Chinese financial institution for EDP and invest another €2 billion EUR, including co-funding capex, by 2015 for minority stakes ranging from 34-49% in 1.5 GW (net) of operational and ready-to-build renewable energy generation projects in Portugal. CTG's preferential financing was expected to sufficiently meet EDP's refinancing needs prior to 2015 and increase earnings per share by 5% for reduced financing costs and boost liquidity to €8 billion EUR, improving the company's credit profile and reducing debt levels. CTG also agreed to promote lines of financing to Portuguese banks and other companies, potentially including capital for the largest listed bank in Portugal Millennium BCP. Portuguese treasury secret Maria Luis Albuquerque claimed that all of the money flowing into the Portuguese economy from the deal could total €8 billion EUR. CTG's high bid and strategic support to EDP were the main factors in picking it as the winning bidder, though the offered other financial support was beneficial too. Analysts considered it to an overbid, and anticipated CTG would see a below-average return on its investment, though cheap financing from Chinese banks was expected to help make up for it. EDP is a Portugal-based multinational energy company with specialties in a monopoly on the power generation and distribution in Portugal and renewable energy. It is the controlling shareholder of Companhia de Electricidade de Macau – CEM, S.A., one of Macau's private public utility company responsible for transmission and regulation of electricity. Its subsidiary EDP Renováveis (EDP Renewables) had the world's fourth largest wind power in the world. EDP has operations in 13 countries including Portugal, Spain, the United States, Europe, and Brazil. EDP and its subsidiary EDP Renováveis were listed on the Euronext Lisbon Stock Exchange, while its Brazilian subsidiary Energias de Portugal, S.A - Energias do Brasil S.A. was listed on the BM&FBOVESPA in Brazil. As of the end of 2010, EDP had total assets of €40.49 billion EUR and net assets of €10.78 billion EUR. In 2010, EDP had an operating revenue of €14.2 billion EUR — accounting for approximately 9% of Portugal's GDP — and a net profit of €1.2 billion EUR. Its installed capacity of non-renewables (including hydropower) in Portugal was 9.94 GW, accounting for 70% of the country's installed capacity, and 3.86 GW in Spain, 5% of its total installed capacity. Its installed capacity of renewables is 6.44 GW, with the European portion accounts for 4% of the total European capacity and the American portion accounting for 8% of the total installed capacity of the United States. This acquisition was the largest investment by China in Europe to date. CTG planned to enter the European, American, and Brazilian markets through EDP as part of its globalization; it specifically planned to invest in new projects in Brazil in EDP, without impacting the equity structure of EDP Brasil. Via strategic partnership in renewables, EDP would focus on Europe, the United States, Canada, and select South American markets, while CTG would focus on Asian markets. On January 4, 2012, EDP imputed the 21.35% of voting rights to CTG. The final sale was completed on May 11, 2012. On May 11, 2018, CTG launched a voluntary cash tender offer worth €9.074 billion EUR ($10.84 billion USD) to buy out the remaining 76.73% stake in EDP that it did not already own for €3.26 EUR per share. In April 2019, EDP's shareholders voted to block the hostile takeover.