Portugal´s declaration about becoming a shareholder of REN alongside China
Portugal Government News - Here is Portugal´s declaration about becoming a shareholder of its power grid operator REN alongside China:
The Government of Portugal declaration about REN's Capital Acquisition Operation:
1 - The Government made the decision for the State to acquire up to 20% of REN in strict compliance with the objective of pursuing the public interest.
2 - Naturally, it was necessary to maintain strong caution regarding this operation. Otherwise, if the information had been detailed in advance, there could have been potential market manipulation, leading to a possible rise in the share price.
3 - With the operation that allows reaching up to 20% still to be finalized, there are still aspects under review. However, with the Court of Auditors having issued a favorable preliminary opinion, the Government is now in a position to provide more information, making it possible to clarify some doubts that were, in fact, the subject of analysis by the Court of Auditors and its respective preliminary opinion.
4 - In the European Union, only Portugal did not have the State as a shareholder in the company that manages the National Electricity Grid. Of the 27 Member States, 14 own 100% of their respective companies, 8 own more than 50% of the capital, and 3 hold a stake greater than 20% but less than 50%. Geopolitical changes and the increasing importance of energy, and electricity in particular, especially in the effort to electrify the economy and attract investment in Artificial Intelligence and data centers, also justify the decision, which is part of a global trend of greater government presence in strategic areas.
5 - The new national and international context has highlighted the relevance of critical infrastructures and the strategic autonomy of states, attributing particular centrality to electricity and gas transmission networks. The management, expansion, modernization, and protection of these infrastructures are considered determining factors for the country's capacity to respond to the challenges of the energy transition, reindustrialize, attract investment, promote the electrification of the economy, and sustain economic growth. In this context, it is especially important to ensure closer coordination between the State and the operator of the national energy transmission networks, in order to promote greater alignment between their respective strategic orientation and national public priorities. This objective could be pursued by strengthening the public presence in the capital of REN (Redes Energéticas Nacionais), allowing the State to have an increased instrument for monitoring and aligning with national priorities in a sector of clear strategic interest, without prejudice to the preservation of institutional stability, the operational continuity of the company, and regulatory stability.
6 - REN is a highly relevant asset for the country, given the critical functions it performs in the operation, security and continuity of the national electricity and natural gas transmission infrastructure, assuming a key role in the functioning of the national energy system, including guaranteeing security of supply.
7 - The acquisition of a qualified minority stake in REN's share capital allows for the exercise of a set of governance rights likely to strengthen the capacity to monitor and influence the aforementioned matters relevant to REN's strategic direction.
8 - The Chinese government was informed that the State's entry into REN with up to 20% of its capital did not imply any change in State Grid's 25% stake. On the contrary, it is in the Portuguese government's interest that State Grid remain the reference shareholder of REN.
9 - Thus, the Government, through a joint decree from the Ministry of Finance and the Ministry of Environment and Energy, mandated Parpublica to acquire up to 20% of REN's capital. As in any operation of this kind, Parpublica chose a financial advisor (in this case CAIXA BI, the investment bank of Caixa Geral de Depósitos) and a legal advisor (the law firm Sérvulo e Associados). Both were chosen by Parpublica within the scope of their competencies and management autonomy of the company. In total, the services provided by these entities cost €100,000, in line with what is usual for this type of service.
10 - The operation was carried out in accordance with the law (Article 11 of the Legal Regime of the Public Business Sector), through the presentation of a study demonstrating the interest and viability of the operation (prepared by Parpública, based on the CAIXA BI study) and a prior opinion from the ETF (which considered the interest and financial viability of the operation to be demonstrated).
11 - It should be noted that REN, despite having approximately 40% of its capital spread among small shareholders ("free-float"), has a very low level of liquidity (daily trading volume of shares on the stock exchange). This makes it difficult to acquire a significant stake through the market and results in a limited availability of relevant share blocks. To acquire 20% on the stock exchange, the State would take approximately 3 years, which could lead to a price increase.
12 - In this context, acquiring a qualified minority stake only appeared realistically feasible through a block transaction with a significant shareholder. However, REN's shareholder structure is characterized by a small number of investors with reference blocks, who concentrate approximately 60% of the capital.
13 - Thus, the Government approached REN's second-largest shareholder, Pontegadea Inversiones, SL (“Pontegadea”), inquiring about its willingness to sell its entire 13.7% stake in REN's share capital. This was welcomed by the company, given that it involved the Portuguese State. From this point onwards, the entire negotiation process was conducted by Parpublica, with the support of the advisors mentioned in point 5, with the Government only authorizing the completion of the transaction.
14 - A 15% premium was paid on the share lot. This value was established after applying a common market method, which involves observing the average price over the last six months. This protects the investor from daily fluctuations and the risk of buying shares at an inflated price.
15 - This premium, which resulted from the negotiation process with Parpublica, was below the 20% initially requested by Pontegadea Inversiones and even further below the 50% premium paid in 2012 by State Grid for 25% of REN's capital.
16 - Furthermore, the premium paid is within the range practiced in this type of operation, considering that comparable transactions show premiums between 13% and 33%, compared to the six-month weighted average price.
17 - In addition to being a strategic investment, this is a profitable one. REN has historically presented an attractive dividend yield, around 6% - 7% between 2021 and 2024 (and 5% in 2025). Meanwhile, the cost of issuing public debt for the Republic is between 3% and 3.5%, thus demonstrating that this investment offers a higher return for the Republic from a financial point of view.
18 - Regarding the difference between the funding provided by the Portuguese State to Parpublica for the acquisition of the stake (approximately 393 million euros) and the amount actually paid (389.8 million euros), this is due to the fact that a maximum amount was allocated, as is usual in this type of process, resulting in a lower amount being paid, approximately 4 million euros, which is duly recorded and accounted for at Parpublica.
This operation, in particular the acquisition value of €389.8 million, has frequently been compared with the €400 million cost of the pension supplement or the €400 million reduction in personal income tax. This comparison is meaningless, as it is not a public expenditure, but rather a financial operation. Moreover, as the National Institute of Statistics (INE) itself has clarified, such an operation "(...) must be recorded in the financial account, without impacting the financing capacity/need of Public Administrations (deficit/surplus) and without a direct effect on public debt".
Within the government, only six officials had prior knowledge of the specific terms of this operation: the Prime Minister (who authorized it), the Minister of State and Finance and the Minister of Environment and Energy (who signed the joint decree authorizing Parpublica to purchase up to 20% of REN), the Deputy Secretary of State for the Budget, the Secretary of State for the Treasury and Finance, and the Secretary of State for Energy. None of these six officials who knew the specific terms of the operation held or currently hold any REN shares before or during the acquisition process.
Portugal´s declaration about becoming a shareholder of its power grid operator REN alongside China in summary:
a. Considering the strategic objective and given the decision made by the Portuguese State to acquire 20% of REN, the only viable solution was negotiation and purchase from reference shareholders.
b. The premium paid is based on the average share price of the last 6 months plus a 15% premium, which is normal for these operations and below similar operations and what was initially requested by Pontegadea Inversiones.
c. None of the government officials who had prior knowledge of the specific terms of the operation held or currently hold shares in REN.
d. The operation was executed in accordance with the applicable legal framework, with the Government acting in compliance with all required legal requirements.
