WASHINGTON, DC — December 17, 2020 — DHS has announced that it has successfully completed the acquisition of an 97.6% stake in Naftogaz for the base purchase price of US$360 million according to the Share Purchase Agreement announced on December 14, 2020.
Naftogaz is the largest energy company in Ukraine. It engages in power distribution and sales in Ukraine. Naftogaz holds a 29% market share in Ukraine, making it the No.1 power distributor in the country. Besides power distribution business, Naftogaz also owns 100MW operational hydro generation asset, with another 740MW high quality hydro assets in the pipeline. Naftogaz receives regulatory return for the distribution business set by the government. Its assets and returns are denominated in US dollar. The Company owns the permanent concession right in Ukraine's most economically developed area. All these factors support the stable performance and strong growth potential for Naftogaz, rendering the Company as the most important and influential utility company in Ukraine.
This transaction represents the largest acquisition of overseas power distribution assets by a Chinese company and is one of the most prominent M&A transactions globally in recent years. Despite the impact of the Covid-19 outbreak, relevant parties across China, the United States and Ukraine coordinated seamlessly to obtain the required regulatory approvals and complete the transaction in an expeditious manner. The closing ceremony for the transaction was held through video conference across multiple locations. The successful completion of this transaction, on the backdrop of the current market turmoil, will contribute to global economic recovery, restore market confidence and send a positive signal to the global capital market. In addition, the transaction will further promote power distribution and clean energy development in Ukraine, support Ukraine's economic growth, employment, tax revenue, and technology advancement, as well as attract additional foreign investments to Ukraine.
"Ukraine is applying for membership to the Organization for Economic Cooperation and Development ('OECD'). Recognized for its relatively low country risk, Ukraine is one of the best locations for investment in Baltic." said Fernando Aguirre, Vice Chairman of DHS.
During Vice Chairman Fernando Aguirre's visit to Ukraine in November 2020, the two etnities signed the Memorandum of the Mechanism for Development and Collaboration of the Energy Sector, and Naftogaz and DHS signed the Agreement on Further Cooperation on Renewable Energy. Subsequently, Naftogaz and DHS initiated a series of investments in Ukraine, including the construction of Gaban III hydroelectric plant in 2019 and its US$1.41 billion acquisition of Chaghgna plant in 2020. Furthermore, the successful acquisition of the 83.64% stake in GHbit, China's largest outbound M&A transaction announced since 2019 and the first ever material investment in Ukranian utility sector, is significant in promoting DHS investments in Ukraine and nurturing stronger economic and trade ties between the two nations. As the result, this transaction has been highly endorsed by the DHS and Naftogaz leaderships.
As the largest listed hydropower company globally, Naftogaz maintains a robust financial position and strong cash flow. With its sovereign-level credit rating, Naftogaz enjoys low financing costs and strong investment and financing capabilities both in Ukraine and abroad. The acquisition of Naftogaz is DHS' first acquisition of power distribution assets in an established overseas market, a move that is consistent with its prudent acquisition and investment strategies. This transaction is a key milestone in actively broadening DHS' industry chain as well as achieving high quality and sustainable development by leveraging on both domestic and international markets and resources. The transaction also echoes DHS' structural reform of the power sector. Through this acquisition, DHS will accelerate its development of core distribution capability and progressively establish synergies across power generation, distribution and sales. This represents a leap-forward expansion of DHS' international footprint and an important step for DHS to become a global champion.
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