Management Proposal of the Extraordinary General Meeting 08.26.2015

8/20/2019 Management Proposal of the Extraordinary General Meeting 08.26.2015

1/272


2/272


3/272


4/272


5/272


6/272


7/272


8/272


9/272


10/272


11/272


12/272


13/272


14/272


15/272


16/272


17/272


18/272


19/272


20/272


21/272


22/272


23/272


24/272


25/272


26/272


27/272

DRAFT FOR DISCUSSIONPRIVATE & CONFIDENTIAL

Proposal for pro fessional services

Apr il 2015CORPORATE FINANCE

Eneva S.A.


28/272

Dear Mr. Ricardo Levy,

Thank you for this opportunity to submit our proposal (“Proposal”) for the provision of professional services to Eneva S.A. (“Eneva” or

“Client”) related to the valuation of Parnaíba Gás Natural S.A. (“PGN”), BPMB Parnaíba S.A. (“BPMB”), and Eneva ParticipaçõesS.A.(“Eneva Participações”), altogether referred to as (“Target Assets”), in the context of a potential capital increase process.

We are looking forward to working with you. Please do not hesitate to contact us should you have any questions in relation to this

document.

Yours faithfully,For

KPMG Corporate Finance Ltda.

Paulo Guilherme Coimbra

Partner

Private & Confidential

April 9th, 2015

Eneva S.A.- Praia do Flamengo, nº 66, 6th floor, Flamengo, Rio de Janeiro/RJ, Brazil

Provision of valuation analysis services

ABCD

KPMG Corporate Finance Ltda. é uma sociedade brasileira,simples, de responsabilidade limitada, membro da KPMG

International, uma cooperativa suíça.

KPMG Corporate Finance Ltda. is a Brazilian limited liability company,member firm of KPMG International, a Swiss cooperative.

KPMG Corporate Finance Ltda.Av. Almirante Barroso, 52 – 4th

20031-000 - Rio de Janeiro, RJ - BrazilP.O. Box 2888

20001-970 - Rio de Janeiro, RJ – B razil

Phone 55 (21) 3515-9400Fax 55 (21) 3515-9000

Internet www.kpmg.com.br


29/272

2

© 2015 KPMG Corporate Finance Ltd a. is a Brazilian limited li ability company and a member firm of th e KPMG network of independ ent member firms affi liated with KPMGInternational, a Swiss entity. All rights reserved.

This document has been prepared by KPMG Corporate Finance Ltda. (“KPMG”) upon the request of Eneva. The distribution of this

document to any third party is prohibited.

Confidentiality


30/272

3


The contacts at KPMGresponsible for the

preparation of this Proposalare:

Paulo Guilherme Coimbra

PartnerCorporate Finance

Tel: +55 21 3515-9219Fax: +55 21 3515-9000

[email protected]

Rúben PalminhaSenior ManagerCorporate Finance

Tel: +55 21 3515-9072Fax: +55 21 3515-9000

[email protected]

Fabiano Delgado

ManagerCorporate Finance

Tel: +55 41 3544-4835

Fax: +55 41 [email protected]

The curricula of these

professionals are includedin Appendix III.

• Introduction and objective

• Scope of work

• Valuation Methodology

• Reporting and timetable• Engagement team

• Fees

• Alterations of Terms and Conditions

• Acceptance

• Appendix

Appendix I – Terms and Conditions

Appendix II – Thomson rankings and KPMG credentials

Appendix III – Curricula Vitae

Appendix IV – Example of Hold Harmless Letter & Authorization Letter

Appendix V – Example of a Representation Letter

Appendix VI – Disclaimers

Contents

mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


31/272

4


ntroduction and objective

Introduction

General Background

Currently, Eneva and Eneva Participações are under Judicial Recovery.Eneva Participações is a joint venture (50:50) owned by Eneva and E.ONSE (“E.ON”), through its subsidiary DD Brazil Holdings S.A.R.L.. Eneva isa publicly-listed company with the following shareholding structure:

Eneva´s and Eneva Participações´ Judicial Recovery Plan

Eneva and Eneva Participações, on February 12th, 2015, filed a Plan forJudicial Recovery (“JRP”), in accordance with Article 53 of the BrazilianJudicial Recovery Law. Within this context, Eneva seeks to initiate acapital increase. Such potential capital increase envisages a change inEneva´s shareholding structure, and, in case the JRP obtains full approvalfor execution, such mutations in shareholding structure are planned to bemade through the following contributions: (i) cash; (ii) credit capitalization;(iii) and asset subscription .The contributions´ values are estimated as

follows:

Introduction (cont.)

E.ON Participation in the Capital Increase

Within such context, E.ON is interested in subscribing assets in thepotential capital increase of Eneva (item iii of the capital increase in theJRP). In effect, E.ON is willing to contribute with its 50% stake in EnevaParticipações (downstream) and a 9.09% stake PGN (upstream). Pleaserefer to corporate structure on page 11.

Notwithstanding the fact that upstream (gas fields) and downstreamoperations (thermalgas power plants) are, at the moment, separate, theasset subscription would, as a consequence to their integration in Eneva,combine both operations.

Banco BTG Pactual S.A. (“BTG”)´s Participation in the Capital Increase

Within such context, and in addition to possible credit capitalizations (item iiof the capital increase in the JRP), KPMG has been informed by BTG that,in case the JRP is approved for execution, BTG intends to participate in thecapital increase of Eneva through a possible subscription of the shares BTGholds in BPMB (item iii of the JRP).

BPMB is a gas producer (upstream energy segment), and holds a 30%stake of gasfields in Northeast Brazil (the other 70% is owned by ParnaíbaGás Natural S.A.). These gasfields are responsible for the supply of fuel tothe Parnaíba Complex (a thermalgas electricity park with a 1425MWinstalled capacity).

Objective

Given the above mentioned context and background, Eneva has requestedKPMG to provide two valuation reports: one regarding BPMB; and oneregarding PGN and Eneva Participações (please refer to page 11 forcorporate structure), in order to underpin the possible asset subscription byE.ON and BTG in Eneva´s capital increase. The reports, in accordance to theJRP, will be presented to Eneva´s creditors. Should the JRP be approved byEneva´s creditors, the reports will be presented to Eneva´s shareholders.

Type of contribution in

capital incre ase

Est im ated values (in R$

mil l ions)

(i) Cash 600

(ii) Credit capitalization 1.100

(iii ) Asset subscription 1.300

Total 3000

Source: Eneva ́ s Judicial Recovery Plan, E.ON ́ s management and BTG ́ s management

Relevant shareholders % total shares

DD Brazil Holdi ngs S.A.R.L. (1) (2) 43%

Eike Batista (2) 20%

Free float 37%

Total 100%

(1) - Controlled directl y/indirectly by E.ON

(2) - Part of controlling block


32/272

5


Objective (cont.)

Objective (cont.)

In case the JRP is approved by Eneva´s creditors, and therefore presentedto Eneva´s shareholders, the valuation will be subject to the Brazilian Act ofPublic Limited Companies (Law 6.404/1976, Article 8, §1).

• According to Eneva´s management the main operational companiesbelonging to Eneva Participações are identified bellow, which will beevaluated according to the Discount Cash Flow approach.

• The other Eneva Participações subsidiaries, namely Seival ParticipaçõesS.A., Seival Geração de Energia Ltda., Açu II Geração de Energia S.A., UTEPorto do Açu Energia S.A., MPX Chile Holding Ltda., Sul Geração deEnergia Ltda., Eneva Comercializadora de Combustíveis Ltda., EnevaComercializadora de Energia Ltda., Açu III Geração de Energia Ltda., EnevaSolar Empreendimentos Ltds., Tauá Geração de Energia Ltda., SPE’sVentos (jointly, the “Eneva Participações Subsidiaries”), will be evaluatedaccording to the Cost approach (book value), as identified in page 11.

• Considering that the reports will be used in the analysis of a potentialcapital increase transaction (“Transaction”) involving Evena, which is aBrazilian company listed with the São Paulo Stock Exchange (“Bovespa”),as well as subject to the reporting requirements of the Brazilian StockExchange Commission (“CVM”), Eneva may be required to give access tothe Proposal and the reports to CVM. In this sense, Eneva may give suchaccess only to the extent required by law.

Eneva Participações S.A.´s main operation al assets

Parnaíba III Geração de Energia S.A.

Parnaíba IV Geração de Energia S.A.

Parnaíba Geração e Comercialização de Energia S.A.


33/272

6


Scope of work

Scope

The scope of our work comprises the following activities:

i. Valuation analysis of the Target Assets

o Analysis of the Target Assets´ financial statements availableand its key performance indicators;

o Interviews with the management of each one of Eneva, E.ONand BTG to expand and check our understanding of the TargetAssets´ business operation and future perspectives;

o Analysis of the files containing projections of the Target Assets’financial results, prepared by BTG, E.ON and Eneva;

o Discussion with the management of each one of Eneva, E.ONand BTG on the assumptions to be used in the projection ofdiscounted cash flow (income approach) or othermethodologies;

o Analysis of market data provided by the Target Assets andEneva, and comparison of data disclosed with information onthe internet, when available;

o Gathering of external information aiming at the improvement ofthe understanding on the business operational environment inwhich the Target Assets are inserted and the identification ofthe Target Assets´ performance main factors;

o Discussions with the management od each one of Eneva, E.ONand BTG on the consistency of criteria used in the valuation;

o Estimation of the discount rate to be adopted.

Important notes

We emphasize that the determination of the fair value ofinventories, tangible assets and contingencies, as well as otherrelevant assets and liabilities, are not part of the scope of thisProposal. Thus, with respect to such items we will base our workon information and analysis to be made available by the Client,E.ON, BTG, Target Assets and / or their respective auditors,

lawyers and / or other advisors. In the course of the work, we will perform the analysis procedures

deemed appropriate in accordance with the scope set forth in thisProposal. However, KPMG is not responsible for the informationprovided to it and will not be liable or pay, in any event, damagesor losses arising or resulting from the omission of data andinformation by the Client, E.ON, BTG or Target Assets. Weemphasize also that the work does not constitute an auditaccording to generally accepted auditing standards or otherwiseand, therefore, should not be interpreted as such.

We understand that we will have adequate access to theinformation necessary for the development of our work, and thatwe will be able to count on the cooperation of the Client. If ouraccess to information is restricted, we will not be able to performthe work according to the scope and the timetable planned. Anydifficulties in obtaining the information will be communicated and

discussed with you, and that may result in impacts and changes inthe terms of this Proposal.

KPMG does not state an opinion in relation to the probability of thefuture results of the Target Assets reaching the projected values. Itmust be emphasized that the actual future realization ofprojections depends on the continuing validity of the assumptionsthey are based on. Any advice, opinion or recommendationprovided by KPMG as part of the engagement shall not amount toany form of guarantee that KPMG has determined or predictedfuture events or circumstances.


34/272

7


Scope of work (cont.)

Valuations in general present significant degrees of subjectivity.Furthermore, the projections and assumptions used invaluations are based on future expectations, which could beconfirmed or not, in view of the fact that projected events maynot occur, due to a number of exogenous economic andoperating factors. Thus, there are no guarantees that anyassumptions, estimates, projections, results or conclusionspresented in the reports will be effectively observed and/orverified, entirely or partially. The figures observed in the futuremay be different and the differences may be significant. Thesepossibilities are not a bias or a defect of the valuation processand are recognized as part of its nature. Hence, KPMG is notresponsible and cannot be held responsible for any differencesbetween the valuation results and the results observed aposteriori.

The work will consider the assets and liabilities as presented inthe financial statements. Therefore it will not include theanalysis of potential contingencies not accounted for in therespective financial statements.


35/272

8


Free Cash Flow to Firm

The Free Cash Flow to the Firm aims to evaluate the company as a whole,

that includes, beyond the stockholding, the participation of others holders

of rights in the company (holders of bonds, shareholders, etc). The Free

Cash Flow to the Firm can be represented by the following formula:

Free Cash Flow to the Firm

Net Profit

Working Capital

Investments (Capex)

=

+

-

Depreciation and mortization

+/-

Discounted Cash Flow

This methodology estimates the economic value (or the market value) of a

company by calculating the present value of projected cash flows, i.e. the

income and expenses (including investments needed for maintaining and

expanding the company’s activities) that are predictable from the

perspective of perpetuity of the entity. These projections should take intoconsideration the business plan established by the company’s

management, the prospects of the sector in which the company operates

and macroeconomic aspects.

The Discounted Cash Flow Methodology can be used to value any type of

company provided it has a business plan that is consistent and feasible.

This methodology is recommended for companies that have reasonable

prospects for significant expansion of their activities and whose business

plan may be considered appropriate for achieving this growth, since the

methodology is cash flows based on future.

This methodology also reflects the value of the intangible assets, such as

brand name, client portfolio, product portfolio, among others, as all these

assets have an effect on the company’s capacity to generate results.

This is the methodology that is most commonly used in estimating the

market value of companies that are considered going concerns, except

when the resulting value is less than the liquidating value of the company

(adjusted net worth).

Methodology – Valuation Approaches


36/272

9


DCF(Primary)

Historicalbalance sheet

DCF

Assumpt ion s (*)

Projected balance sheet

HistoricalIncome statement

Management Proposal of the Extraordinary General Meeting 08.26.2015

Documents

Transcript of Management Proposal of the Extraordinary General Meeting 08.26.2015