Banco Modal to start $1b private energy fund

New York: Banco Modal SA, the Brazilian bank that helps finance mid-cap companies, will create a 1.8 billion reais ($1.02 billion, Dh3.75 billion) private equity fund to invest in energy assets.

The fund may start in the next three months and will be open to local and international investors, said Eduardo de Abreu Borges, a managing director at the bank, said in New York. Borges expects consolidation in the electricity industry in Brazil as distributors buy stakes in generators to compete in the spot market.

Private equity funds may raise three times the $5 billion they attracted last year as the global economy recovers, Sidney Chameh, president of the nation's private equity association, said in an interview last Tuesday. Brazilian pension funds are seeking to increase investments in private equity to diversify their holdings and maintain returns, Borges said.

"Brazilian pension funds have discovered that they can no longer thrive on receiving interest rates from debt instruments only," Borges said. "The pension funds are at last focusing in risk opportunities."

The new fund will follow the model of the bank's 1.3 billion reais FIP Coliseu fund, said Borges. Coliseu and Cia. Energetica de Minas Gerais, Brazil's second-largest electricity generator and distributor, paid 2.15 billion reais for a 66 per cent stake at Terna Participacoes SA in Nov-ember.

First acquisition

Banco Modal also expects to make the first acquisition with its 500 million reais FIP Oil & Gas fund by the end of this month, said Borges, who oversees private equity, investment banking and the commercial department at Banco Modal.

The Oil & Gas fund "is the first to target the supply chain of Petrobras," said Borges, referring to Petroleo Brasileiro SA, Brazil's state-controlled oil producer.

"Historically, those companies are very small ones and they cannot take up the type of demand that this new pre-salt frontier is going to demand," Borges said.