At the company’s annual meeting on April 16, Enersis ENI announced plans to invest $9 billion in South American projects during 2013 to 2017. This is a 30%-plus increase over the previous five-year plan to spend $6.8 billion through 2016. The announcement is not that surprising following the recently completed $6 billion capital increase that provided the company with more than $2 billion of cash. We are maintaining our $18 per ADR share fair value estimate and narrow moat.
Enersis indicated approximately $3.3 billion of the total planned investment would be in Chile, where the company is based, and the remaining $5.7 billion in Argentina, Brazil, Colombia, and Peru. The company already has utility operations in these countries. Enersis certainly has the balance sheet to expand its investment plans.
We estimate debt to capital fell below 30% after the capital increase. The Enersis management team and board had previously supported an inflated valuation of the assets that Enersis’ largest shareholder contributed as its portion of the capital increase. The value assigned to these assets was significantly lowered after minority shareholders, led by Chilean private pension fund managers, voiced objections. Thus, we reiterate our concern that the funds may be invested ineffectively, destroying shareholder value.
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