How Canada’s Brookfield snatched bargain assets amid Brazil panic

SAO PAULO: Rampant corruption scandals and a deep recession soured many foreign investors on Brazil in recent years, but one Canadian group saw opportunity.

Brookfield Asset Management Inc and its subsidiaries have made nearly a dozen major acquisitions there since 2013. The companies have spent about US$10bil on energy, infrastructure and real estate assets few others would touch due to the legal, political and economic risks involved.

“A crisis is a good time to find value,” said a person close to the group, who called Brookfield a “contrarian investor”. That includes buying assets from companies entangled in the blockbuster Car Wash investigation, which jailed dozens of businessmen and politicians. The deals confirmed Brookfield’s reputation as one of the strongest-stomached investors in Brazil.

In 2016, for example, Brookfield Infrastructure Partners LP led a US$5.2bil acquisition of a pipeline operator from Petroleo Brasileiro SA, the state-controlled oil company at the heart of the Car Wash scandal. Recently, another Petrobras pipeline network with half the capacity fetched a top bid of around US$8bil from other investors. Bargain-hunting Brookfield gave that deal a pass.

The Canadians’ savvy is built on nearly 120 years of experience in South America’s largest economy. But the recent buying spree pushed the company to new extremes of due diligence and bulletproofing, according to interviews with six people involved in the deals.

The company declined to comment on investments in Brazil, which account for about 15% of its US$286bil portfolio and represent its biggest market after the US.

Chief executive Bruce Flatt, whom some call the Warren Buffett of Canada for his value-investing approach, called recent Brazil acquisitions “quality businesses from sellers in need of capital” in a February letter to investors.

Brookfield’s purchase of gas pipeline operator Nova Transportadora do Sudeste SA (NTS) from Petrobras was part of a controversial divestment program aimed at trimming the oil firm’s massive debt load.

Critics have decried the privatisations, and Ciro Gomes, a leading leftist presidential candidate, has pledged to reverse sales of state energy assets if elected this year.

Foreseeing the risk, Brookfield tasked dozens of lawyers with drafting an ironclad agreement. Brookfield has a right to compensation if Petrobras changes the contracts in a way that hurts the Canadians’ cash flow, according to sources.

The head of Brazilian investment banking at a global bank, who was not involved in the NTS deal, said it was an example of Brookfield’s willingness to bet big while protecting itself.

“Everyone was stunned by their US$5bil bid at the time,” the banker said.