The purchase of Hispasat by Red Eléctrica Corporación It is the first in a series of strategic decisions that the president of the company will undertake, Jordi Sevilla, in diversification, internationalization and search for new partners that will change the configuration of the group. We must bear in mind that Red Eléctrica is already more than the transporter and operator of the Spanish electricity system. Hispasat, acquired from Abertis for 949 million euros, will be added to the other three legs of the group: Red Eléctrica de España; Reintel, which manages the fiber optic networks business; and Red Eléctrica Internacional (REI), which operates electricity networks in Peru and Chile.
The Seville project, which agreed to the group's presidency in July, seeks to grow the three legs, a goal defined in the strategic plan 2018-2022. Hispasat will not be a financial investment as some might think, after circulating the rumor that the Government would have forced Red Eléctrica to make this acquisition.
The president plans to accelerate the growth of Hispasat, which has seven satellites, distributes 1,250 television channels and whose turnover grew 17%, from 201 to 235 million euros, between 2013 and 2017. "Our idea is to introduce Hispasat in new business segments, through new types of satellites, the media and low ", explains Sevilla himself. It seeks to expand its presence in sectors other than television (60% of the business), for example, in mobile services, the Internet in remote areas or ships and planes. "Internet services to remote areas that we are providing in Spain have even more possibilities in Latin America", appreciates Roberto García Merino, director of business diversification.
Hispasat will receive tailwind. The satellite industry, according to García Merino, "presents a growing demand due to the exponential growth of data consumption". According to the SIA (Satellite Industry Association), its turnover increased from 122,000 to 261,000 million dollars between 2011 and 2016 in the world.
The second leg of the group called to grow is Reintel, the subsidiary of fiber optic in which, according to Sevilla, "we tend to expand in Latin America, given that in Spain there are more limitations." The company, with 33,000 kilometers of fiber, the latest acquired from Adif in 2014, has had contacts to buy the Correos network, which did not come to fruition. With electricity grids in Chile and Peru, the group wants to grow the international area - in electricity and telecom networks - through REI, which has been allocated 1,000 million to invest until 2022.
"We are going to look for opportunities, not only in Peru and Chile, but also in Brazil and the US," predicts the president of Red Eléctrica. Sevilla believes that in the international area there will be commercial synergies between Hispasat and Reintel. "In Peru or Chile, fiber optic works only in cities, in the field we have to use the satellite." This gives the company the possibility of offering an integrated package to its customers. The group is also preparing the launch of a new technology company "that will focus on innovation, attracting talent and investment in start-up," he adds.
In parallel with these plans, the company will try to capitalize these companies with the entry of new shareholders who, in addition to contributing capital, collaborate in its expansion. "We want to incorporate an industrial partner to Hispasat, an idea that I have already mentioned to the Government," explains Sevilla. "We only need 51%." The same thing wants to do in Reintel, which could go public. Or in REI, the international. In all, the objective is to include strategic, non-financial partners. These capitalization projects also include Red Eléctrica de España, at the request of the National Commission of Markets and Competition (CNMC), which will demand a series of stricter leverage ratios.
In Red Eléctrica, they expect the entrance of Hispasat to contribute, together with Reintel and REI, to setting up a corporation with greater weight in the market and less in the regulated area. "We calculate that the unregulated area grows from the current 5% to more than 15%, something similar will happen with internationalization, which could increase to 20%," estimates García Merino. "Our objective is to create a stronger and more balanced Electricity Network, combining the regulatory risk with the market risk," says Sevilla. It does not hide that the bet for businesses more exposed to the market "is explained in part by the reduction in the remuneration set by the regulator for network operators". This reduction from 6.5% to 5.58% will reduce the company's income, which has grown considerably these years, from 1,758 to 1,948 million between 2013 and 2018, 18.9%, which could even lead to a reduction of the dividend.
But your system operation business will not take a back seat. Red Eléctrica de España will take 53% of the investments foreseen in the strategic plan. The company will have to adapt to the demands of the Energy transition in Spain. "We will have to increase the infrastructure to integrate renewables, since there will be production in places where now there is nothing," says the president. More kilometers of network, connections and substations are needed. Although 949 million will increase the debt, almost 5 billion in 2017, Seville is not worried: "Our ratios will continue to be very acceptable and, in addition, I do not think there will be rate increases".
It does not seem, however, that the company's plans have liked investors and analysts. The action, which had climbed from 15 to 20 euros since last April, fell after the purchase of Hispasat on February 12, and the strategic plan, on the 20th. Red Eléctrica, which is now over 19 euros, lost steam. while the Ibex went up. Most of the stock houses have indicated their bewilderment over the purchase of Hispasat, they do not understand well the fit in the group which, together with the fall in retribution, led many to recommend maintaining or selling. For García Merino, they are two very similar businesses, the group has an experience of almost 30 years in diversification and, in addition, the satellite operator was cheap. "We bought it at an 8.3% EBITDA, when the market average is 9%." And he is not worried about the decline of the last weeks, since "we continue in a valuation of 19 euros, which is very interesting for a company like ours".