Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Aqua America in Brazil Foreign direct investment project focused on water infrastructure in Brazil PREPARED BY: Eric Bell, Keith Boom, Valerie Cupp, Bill Panagis, and Kim Rieck Foreign Direct Investment Why Invest in Water? Growing global demand and decreasing supply of potable water in emerging markets •In the last century water usage has grown at more than 2x the rate of the population •Water use increases with a rise in living standards- implications for emerging markets •Industrial processes are water-intensive •Brazil: 14% of Earth’s freshwater supply but Northeast does not have access to adequate supply of potable water •Brazilian Government investing in water •2.5% of Earth’s water supply is freshwater infrastructure to prepare for 2014 World Cup & •70% of freshwater is frozen 2016 Olympics •39% of global population without adequate sanitation Source: Food and Agriculture Organization of the United Nations (FAO) and UN-Water WATER BRAZIL INVESTMENT DECISION Foreign Direct Investment Why Invest in Brazil? Strong macroeconomic fundamentals •PROS: Strong economic fundamentals Economic powerhouse: 10th largest economy in the world; GDP ≈ USD$1.55 trillion; vast natural resources; large labor pool Robust Growth: Economy expected to grow faster than those of the G6 in next 50 years Regulatory Environment: Floating exchange rate, free capital flow, limited barriers to FDI, open capital markets •CONS: Rising inflationary pressure Monetary Tightening: COPOM raises SELIC rate 75bps in April to 9.5%, 12.5% by 2011 Expansionary Fiscal Policy: Increased Government spending to cause additional pressure to curb inflation Declining Trade Balance: Current account deterioration likely in 2010; could be offset by rising commodity prices and increase in exports Source: World bank WATER BRAZIL INVESTMENT DECISION Foreign Direct Investment Investment Strategy Enter into joint venture with Miya Group to form Agua Brazil (AB) - owner and operator of a water treatment facility supplying the city of Mossoró Project Profile Value Proposition Financial Strategy • • • • STRUCTURE: Joint Venture; Aqua America (90%) and Miya Group (10%) TERM: 10 Years LOCATION: Mossoró, in the state of Rio Grande do Norte, in Northeast Brazil TARGET: Existing water supply infrastructure facilities currently owned and operated by state utility company—Caern • AQUA AMERICA: A+ Credit Rating, most efficient US water utility company, growth through acquisition strategy • Miya Group: Leader in engineering and water optimization solutions • INVESTMENT AMOUNT: USD$15MM (BRL$26.1) – 100% cash transaction • TERMS: 51% ownership of facility; 51% of future profits as owner and operator • STRATEGY: Reduce NRW loss rates, increase revenue by expanding customer base and gradual rate increases, lower costs through improved efficiency WATER BRAZIL INVESTMENT DECISION Foreign Direct Investment Should we invest? NO Despite economic growth, improvements in efficiency and increased profitability, risks outweigh return potential FDI Climate Risk Competition Low -Partnership with Caern to access water utility monopoly -High demand -Large customer base Financials High -Rate of return < risk free rate (opportunity cost) -Exchange rate could negatively affect exit strategy -Cash flow dependent on ability of low per capita income customers to pay Regulatory Low -Low barriers to entry Political Low -Current administration pro-social reform Social/Culture Med. -World Cup/Olympics; promotes social infrastructure projects - Corruption prevalent - Sanitation program inefficient WATER BRAZIL INVESTMENT DECISION