Explainer of the week. The prize the State will pay to enter REN

A reentry of the State into REN – National Energy Networks, through the acquisition by Parpublica of a 13.7% stake in a company controlled by the founder of Zara, will be made by 380 million eur, which represents a premium of 17% – corresponding to around eur 55 million – against the company’s quotation on august 14, when the business was increased.

The report was advanced by the Economic Journal, which shows that this is the value entered in the contract that was sent to the Court of Auditors. In fact, the business is subject to a visa from this entity, which has already started the inspection process.

On Friday, remember, it was reported to the Securities Market Commission (CMVM) that Parpublica, a company that manages shares in the Portuguese State, bought from the Spanish of Pontegadea Inversiones a share of 13.7% of REN's capital.

The operation represents a return of the Portuguese State to the shareholder structure of the company, whose privatisation process was completed in 2014, during the PSD/CDS-PP government led by Pedro Passos Coelho, with the exit of the remaining 11% that were still in the public sphere.

The same means of communication reminds us that in Parpublica's portfolio there are holdings in 19 companies: nine held in total, such as AdP – Águas de Portugal, the Company of Lezírias or Estamo real estate; and others are minority, such as that of 8.42% in Galp or 45% in the Hospital da Cruz Vermelha.

The Government’s justification

The Government justified the premium to be paid for REN 13.7% with the weight of participation in the company and the impact that a purchase of this size would have on the stock price, referring the final value to Finance.

In the briefing of the Council of Ministers, the Minister of the Presidency, António Leitão Amaro, explained that the acquisition of relevant holdings in listed companies is usually made through bilateral negotiations, based on a historical average of the quotation and a premium associated with the influence that participation confers.

Leitão Amaro referred the details to the Ministry of Finance, stressing that the case is still pending assessment by the Court of Auditors, but explained that the acquisition of relevant holdings in listed companies is usually made on the basis of a historical value of the quotation, to which a premium is added.

“ Typically, they are made by the listing history plus an X prize that is then agreed between the parties”, he said.

The minister added that the prize is justified, among other factors, by the weight of the acquired participation. The position of 13.7% that the State intends to buy from Pontegadea, the Ortega family, owner of Zara, will be the second largest of REN, behind the 25% held by the Chinese State Grid.

“ That participation, which is the second largest and is half of the largest participation in the company, has in fact an inherent power”, he said, arguing that this value should be considered beyond the market price.

The minister also justified the option of a negotiated acquisition rather than a gradual purchase on a stock exchange, recalling that REN has few shares traded daily and limited liquidity.

“ In a relatively small market with limited liquidity such as REN, the time it would take to acquire such a stake would have two consequences,” he said.

It explained that it would take longer to achieve the desired participation, delaying the strategic objectives of the operation, and the execution of a large number of purchase orders could lead to an increase in price.

Asked about the concrete objective of the State's entry into the capital of REN, Leitão Amaro stated that the question is not whether there should be a state shareholder in the company, since the national electricity network already has a public shareholder, although foreign, referring to the Chinese State Grid.

“What is in question is whether, besides this, there will also be a second that already belongs to the country, the Portuguese State”, he said.

The minister argued that the presence of the State in REN responds to reasons of “sovereignty and energy security” and recalled that the Prime Minister, Luís Montenegro, had already admitted this possibility before taking office.

“ In no country in Europe [the State] is outside the power grid. These are reasons for energy sovereignty and security,” he said.

Leitão Amaro pointed out, however, that the shareholder function does not replace the other public functions in the energy sector, but complements them, referring to the position of the State as a network granter and the regulatory function exercised by an independent regulator (ERSE).

The minister also framed the entry of the State into REN in the challenge of increasing the electrification of the country and investment in the production, distribution and transport of electricity.

According to Leitão Amaro, the effort to increase the supply, distribution and transport of electricity should be carried out with a sustainability perspective and without aggravating costs for consumers.

The minister also stated that the operation to reach agreement for the entry into REN capital was only possible with the current characteristics and relevance because it was conducted “with discretion, but never with opacity”.

As for more details about the business, he always referred to Finance: “The purchase process is pending evaluation by the Court of Auditors. Their final terms depend on it,” he said, adding that the explanations will be given “at the proper moment”, when the process is completed.