Mubadala acquired Rio de Janeiro subway operators Metrô Rio and Metrô Barra in a deal valued at BRL1.8b (~USD335m).

(Valor) Mubadala, Abu Dhabi’s sovereign wealth fund, took over control on Monday of the Rio de Janeiro Metro, which until now belonged to Invepar, the infrastructure and transport holding controlled by pension funds (Previ, Funcef and Petros).

In the operation, valued at R$1.8 billion, part of Invepar’s debt was exchanged with Mubadala and with the pension funds for shares in Metrô Rio and Metrô Barra, concessionaires that operate the Rio metro system. The control of the two companies now passes to Hmobi, the holding for investments in urban mobility, in which Mubadala holds 51.5%, and the three pension funds, 48.5%.

The operation was celebrated both by Mubadala and by the funds as it allows solving a problem with Invepar’s capital structure. The company had an expensive debt related to the issuing of debentures that were underwritten by the funds and by Mubadala. This debt totals R$2.6 billion, of which R$1.8 billion was involved in the Metrô operation. After the transaction, Invepar’s remaining debt with the company’s shareholders and with Mubadala will be R$800 million. Invepar has other important assets in its portfolio, such as the Guarulhos Airport and BR-040 concessions.

The plan, Valor has learned, is to make Hmobi a platform for investments in urban mobility. It also opens the possibility for the company to go public in the future. The holding will focus on complementary assets and the next concession to be added to the portfolio may be Linha Amarela S.A. (Lamsa), an urban highway in the city of Rio, also owned by Invepar.

If Invepar and Rio’s municipality finally reach an agreement on the concession in a legal dispute that has dragged on for about two years, the control of Lamsa may migrate to Hmobi in another operation to exchange shares for debt, as negotiated with Metrô Rio.

The change in Metrô’s control received the consent of the State government. Metrô Rio and Metrô Barra were subsidiaries of Invepar and become subsidiaries of Hmobi. The Rio metro system extends over 54 kilometers and has three lines and 41 stations. There are two concessions: one for lines 1 and 2, valid until 2038, and another for line 4, which runs until 2036. Line 4 connects the south region of Rio to Barra da Tijuca, in the west region.

Before the pandemic, this system transported 900,000 people a day, a number that dropped by 80% at the beginning of the Covid-19 crisis. Now the drop in passengers is in the range of 45%-50% compared to the pre-pandemic. In 2019, Metrô Rio had revenues of around R$1 billion, a figure that dropped to R$600 million in 2020. EBITDA was around R$500 million in 2019 and was close to zero last year.

Mubadala’s negotiations with Invepar began in 2016, when the first proposal to acquire a stake in the company was presented by Mubadala Capital, an asset management subsidiary of Mubadala Investment Company, a sovereign investor based in Abu Dhabi, UAE. In 2017, the fund led a bridge loan for Invepar to address immediate capital needs.

In the beginning, Mubadala’s objective was to enter the share capital of Invepar by buying the shareholding from contractor OAS, which ended up in the hands of creditors of the holding company.

Today, Invepar has as partners the three state pension funds — Previ, with 25.56%; Petros, with 25%; Funcef, with another 25% and FIP Yosemite, which took over the share of OAS creditors, with 24.44%, according to data from the company itself.

FIP Yosemite did not participate in the transaction with Metrô Rio since the deal involved only the subscribers of debentures issued by Invepar. In the transaction, there was a dilution in the participation of the funds, especially for Funcef and Petros.

According to sources, it was not simple to arrive at the definition of the price for the exchange of part of the debt of Invepar for shares of Metrô, since today the asset performs below the pre-pandemic time. The operation pricing considered a scenario of recovery of the subway system in Rio.

“The incorporation of Metrô Rio and Metrô Barra into the portfolio fits perfectly into our strategy of transforming companies that find themselves in a complex context. These investments have a good prospect of operational recovery and long-term profitability, even in the current economic scenario. In addition, these acquisitions increasingly consolidate our experience with assets of this nature,” said, in a statement, Oscar Fahlgren, Mubadala Capital’s CEO in Brazil.

Mubadala’s investments in Brazil have reached $4 billion since 2012. The fund invested $2 billion in Eike Batista’s holding, which led it to take over Porto Sudeste (Rio de Janeiro State) and mining assets. In 2019, the fund acquired a stake in the Rota das Bandeiras (SP) concession; this year it bought the Landulpho Alves (Rlam) refinery from Petrobras, for $1.65 billion.