Investments in the Brazilian Energy Sector: Strategy of ERB Energias

Interview with Paulo de Tarso Vasconcellos Neto, Executive Director of ERB (Energias Renováveis do Brasil)

In terms of investment, in 2008 through 2010 you went through the first phase of finding investors which you did. You managed until now and you have raised 420 millions in funds. What are your plans to attract more investors to your next project?

I think it is important to understand the financial strategy behind our company. When we created the company, we had basically two decisions. One was to act as a developer or a corporation and do all the fundraising of the capital needed to be a corporation. We opted for the second path, to be a corporation, and we started our fundraising. As with 100% of startup companies, we had the goal at that time, and we still have the goal, to be a public company. At that time we decided to have an IPO at some point in the future when the market allows and when our products are in the right stage.

This brought a consequence to our strategy of fundraising. First it was 2008 when we started the company and it was an extremely difficult year in which to raise capital. So we started the process and we ended up attracting two financial investors while still keeping the goal of going public. We have been prepared since the beginning in terms of corporate governance, auditing, board members, etc., to be a public company. This has helped us during the second fundraising period which we are ending now when we needed additional capital. We attracted four more investors.

We discussed a little bit with the two initial investors because they were interested in putting in more money but we said it is good for the company and it is good for the initial investors that we have additional investors. This is because we think that with as many shareholders as we have, we are going down the path of an IPO. Having too many shareholders, you have the basic owners of the company. Having six, you have to balance your board members and you have this kind of thing. So this is the strategy behind it.

What are we going to do to attract more investors to go down this path and continue on this path? Today we have this demand to go into Bovespa Mais. That is the first stage of opening the capital of the company. We have 24 months to be registered in our contracts with the investors, so in 24 months maximum we will be ready to do an IPO depending of course on market conditions. I think this will attract investors. Of course it is not only the strategy that brings investors. All of the operational qualifications and our strategy regarding clients, having first tier clients, first tier financing, first tier supplier, help us to be considered a first tier company some day. That is basically our strategy.

How would you assess the chances of success that this IPO is going to happen?

Of course it depends on the market. The capital market is very tricky. Talking about financing and funding, I think the greatest difficulty we have is to match project developing needs of resources and investors’ ability to analyze the company and close a deal of entrance into the company. Fundraising and matching the capital needs of the company is very complicated. When you bring the additional complication of capital market conditions, it can be very hard to have everything be adequate at exactly the right time. But we believe that the types of business we have, our history, relationships that we have constructed with our clients and the banks, and the reputation we have in the market culminated with our returns will give us a good chance to have a very successful IPO. Continue reading…

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