Exhibit (C)(8)(C) |
Independent Evaluation Report
Prepared for the Directors’ Committee of Enersis Américas S.A.
PRELIMINARY VERSION—DRAFT
June 28, 2016
Strictly Private and Confidential
1
PRELIMINARY VERSION—DRAFT
Important Information
This document has been prepared by Credicorp Capital Asesorías Financieras S.A. (hereinafter “Credicorp Capital”) at the request of the Directors’ Committee of Enersis Américas S.A. (“ENIA” or the “Company”) for purposes established in Article 147 of Law No. 18,046 on Corporations.
The recommendations and conclusions in this document constitute the best judgment or opinion of Credicorp Capital with respect to the Proposed Operation (as this term is defined below) of ENIA at the time this document is issued, considering the methods used to this end and the information that was available. The conclusions of this document could change if other data or additional information becomes available. Credicorp Capital will have no obligation whatsoever to give notice of such changes or of any modifications to the opinions or information contained in this document.
This document has been prepared by Credicorp Capital on the sole and exclusive basis of the information delivered by ENIA and public information, and Credicorp Capital has assumed that this information is fully complete and accurate without conducting any independent verification. As such, Credicorp Capital assumes no liability with regard to the information reviewed or for the conclusions that may derive from any error, inaccuracy, and/or falsehood in such information.
Likewise, the conclusions in this document may be based on assumptions that are subject to significant uncertainties and economic and market contingencies, such as flows, projections, estimates, and assessments, whose occurrence may be difficult to foresee and many of which may even be outside the control of ENIA, to the extent that there exists no certainty as to the actual fulfillment of these assumptions. Under no circumstance may the use or inclusion of such flows, projections, or estimates be
considered as a representation, guarantee, or prediction of Credicorp Capital with respect to their occurrence or to their underlying assumptions.
Strictly Private and Confidential 2
PRELIMINARY VERSION—DRAFT
Contents
1. Executive Summary and Conclusions
2. Background Info and Description of the Proposed Operation
3. General Considerations Used in the Report
4. Analysis of the Economic Terms of the Proposed Operation i. Methods Used for Valuation of ENIA, EOCA, and CHIA ii. Valuation of ENIA, EOCA, and CHIA iii. Estimate of the Exchange Ratios of the Proposed Operation iv. Analysis of the Economic Terms of the Proposed Operation
5. Market and Cash Flow Considerations of the Proposed Operation i. Holding Discount Considerations ii. Liquidity Considerations iii. Considerations on Risk Categorization iv. Impacts on EBITDA
6. Strategic and Management Considerations of the Proposed Operation
Strictly Private and Confidential 3
PRELIMINARY VERSION—DRAFT
EXECUTIVE SUMMARY AND CONCLUSIONS
Strictly Private and Confidential
4
PRELIMINARY VERSION—DRAFT
Background Info and Description of the Proposed Operation
Enersis Américas S.A. (“ENIA” or the “Company”) has begun the second stage of the corporate reorganization announced in 2015 (the “Proposed Operation”). The phases of the reorganization are as follows:
i. Splitting (the “Split”) of the companies Empresa Nacional de Electricidad S.A. (“EOC”), Chilectra S.A. (“Chilectra”), and Enersis S.A. (“ENI”), such stage which was approved during the respective shareholders’ meetings held on December 18, 2015 and implemented beginning on March 1, 2016.
ii. Merger through absorption (the “Merger”) between ENIA (absorbing company), Endesa Américas S.A. (“EOCA), and Chilectra Américas S.A. (“CHIA”), and issuance of a public offer to acquire stock on the part of ENIA, for 40.02% of the stock in EOCA (the “OPA offer”)(1), which will require approval of the Merger during the extraordinary shareholders’ meetings of ENIA, EOCA, and CHIA.
It is our understanding that the Proposed Operation has been proposed to be carried out according to the following conditions, among others:
i. Proposed exchange ratios: 2.8 shares of ENIA for each share of EOCA; 5.0 shares of ENIA for each share of CHIA
ii. The right of withdrawal of the shareholders of ENIA, EOCA, and CHIA may not exceed 10.00%, 7.72%, and 0.91%, respectively, and provided that no single shareholder exceeds 65% ownership of ENIA
iii. Compensation in the case the Merger is not completed: ENIA agrees to compensate EOC Chile and CHI Chile for the tax costs borne by EOC Operation Chile and Chilectra Chile (net of tax credits) resulting from the reorganization process iv. OPA offer:
Price: CLP 295 per share
Conditions: OPA offer conditional to the completion of the Merger
Credicorp Credicorp Capital participated as advisory to the Directors’ Committee of ENI to conduct an independent evaluation of the first stage of the Proposed Operation, presenting its report (available to the public) on November 2, 2015
Capital
Report—On that occasion, the exchange ratios for the Merger were estimated based on current market conditions. As a reference, the estimated exchange First ratios (at their midpoint) were as follows:
Stage
2.50 shares of ENIA for each share of EOCA and 5.04 shares of ENIA for each share of CHIA
(1) The OPA offer will be financed with the remaining revenue from the capital increase of Enersis S.A. in 2012
Strictly Private and Confidential
Credicorp
Capital
Report -
First
Stage
Proposed
Operation
5
PRELIMINARY VERSION—DRAFT
Scope of the Independent Evaluation
Given that the Proposed Operation is a transaction between related parties, on May 16, 2016, the Directors’ Committee of ENIA contracted Credicorp Capital to act as independent appraiser, in accordance with the requirements established in Article 147 of Law No. 18,046 on Corporations
As such, and in adherence to the terms set forth in Article 147 on Independent Appraisers of Law No. 18,046 on Corporations, Credicorp Capital prepared this report (the “Report”), which contains, among others, the following elements:
i. A description of the characteristics, stages, terms, and conditions of the Proposed Operation ii. An analysis of the effects and potential impact of the Proposed Operation for ENIA, including: Whether the Proposed Operation contributes to the best interests of ENIA; and
Whether the economic terms proposed for the Proposed Operations are consistent with market conditions at the time they are approved iii. Other points and answers to specific questions of the Board of Directors or the Directors’ Committee of ENIA with regard to the Proposed Operation As part of the analysis, Credicorp Capital has included the following in the Report: An estimate of the exchange ratios for the Merger and of the value of ENIA, EOCA, and CHIA
An analysis of the economic terms of the Proposed Operation
An analysis of the strategic rationale and potential impacts on the value of ENIA of the Proposed Operation
It bears mention that the following are not included in this Report, as they fall outside the scope of the advisory services:
An analysis of the advantages and disadvantages of alternative structures or alternative mechanisms of execution to conduct the Proposed Operation evaluated here
An analysis of the feasibility of execution of the Proposed Operation in technical, commercial, legal, and/or any other terms
Strictly Private and Confidential 6
PRELIMINARY VERSION—DRAFT
Framework for Analysis of the Impact of the Proposed Operation on ENIA
The independent evaluation by Credicorp Capital will be based on the following analysis methodology:
What is the value of the exchange ratios and of the price of the OPA offer in keeping with market conditions
• Valuation of ENIA, EOCA, and CHIA was calculated based on the sum of parts of their assets using (i) discounted cash flow and (ii) market multiples and capitalization
• Based on those valuations, a value was estimated for:
• The exchange ratios of shares in ENIA for each share in EOCA and CHIA, respectively
• The price per share of EOCA applying the corresponding discounts
What is the impact on ENIA of the exchange ratios and price of the OPA offer of the Proposed Operation
• The estimated exchange ratios and price of the OPA offer were compared to the values proposed in the Proposed Operation
• On the basis of that analysis, it was determined what impact the exchange ratios and price of the OPA offer of the Proposed Operation would have on the ENIA shareholder
Are there factors of the Proposed Operation that could potentially have an impact on the value of ENIA
• The following market and cash flow factors were identified which could potentially have an impact on the value of ENIA:
• Market factors: (i) potential savings in holding discount; (ii) effect on market liquidity; and (iii) effect on risk categorization
• Cash flow factors: potential savings/synergies at the holding level of ENIA
Does the Proposed Operation make sense from a strategic point of view for ENIA
• Alignment of interests on the operational subsidiaries of ENIA
• Greater efficiency in the decision-making process at managerial level
• Access to a greater portion of cash flows due to the reduction in minority interests
• Full completion of what was proposed to the market in 2015
Strictly Private and Confidential
Economic Terms of the Proposed Operation
Other Considerations of the Proposed Operation for ENIA
Estimate of the economic terms
Impact of the terms proposed on ENIA
Market and cash flow considerations for ENIA
Strategic considerations for ENIA
7
PRELIMINARY VERSION—DRAFT
Methods Used for Valuation of ENIA, EOCA, and CHIA
Sum of parts valuation
The methods used to estimate the value of ENIA, EOCA, and CHIA are as follows:
1 Discounted Cash Flow (“DCF”)
DCF valuation of the companies involved in the Merger
Valuations based on projections delivered by ENIA and the criteria of Credicorp Capital Sum of parts valuation for ENIA, EOCA, and CHIA
2 Valuation based on market multiples and quotations (“Multiples”)
Valuation of the companies involved in the Merger, considering:
Market multiples for listed companies by businesses and countries
For listed companies with significant liquidity, market capitalization was considered Sum of parts valuation for ENIA, EOCA, and CHIA
The market values of ENIA, EOCA, and CHIA are estimated by applying the market discount of ENIA to the sum of parts valuations
Strictly Private and Confidential 8
PRELIMINARY VERSION—DRAFT
Based on changes in market prices it follows that the market is approving the Proposed Operation(1)
Implied exchange ratio of shares of ENIA for each share of EOCA
Price per share of EOCA
Implied price of ENIA and EOCA for exercise of withdrawal rights(2)
Since April 28, 2016, the implied exchange ratio of EOCA has been:
Below the exchange ratio of the Merger, and
Above the implied exchange ratio at the price of the OPA offer
Since that date, the price per share of EOCA has traded above the price per share of the OPA offer and with reasonable levels of liquidity
This suggests that the market sees the exchange ratio offered for shares in EOCA as agreeable and believes there is a high probability that the Proposed Operation is approved
To date, withdrawal prices do not indicate that exercise of withdrawal rights will be a negative factor in the execution of the transaction
The withdrawal price of ENIA is below its market price (CLP 114/share)
The withdrawal price of EOCA is below market price and is markedly different from the price of the OPA offer (which has tax benefits)
The withdrawal prices must be monitored until the definitive prices are formed to measure impact on the Proposed Operation
(1) Source: Santiago Stock Exchange. Data as on June 21, 2016. CHIA is not included in the analysis due to its very limited level of market liquidity (this year it traded a cumulative total of CLP 15 million)
(2) It is assumed that the extraordinary shareholders’ meetings for approval of the Merger will be held on August 29, 2016, and so the price for exercise of withdrawal rights for minority shareholders in ENIA and EOCA would be equal to the weighted average price between April 21, 2016 and July 15, 2016. The price shown includes the period between April 21 and June 21, 2016.
(3) Average Daily Trading Volume calculated from April 21, 2016, date on which the companies resulting from the Split began to be traded, through June 21, 2016
ENIA Implied exchange
Shares ADTV(3) ENIAUSD 5.7ratio for EOCA
mm
3.0
ADTV(3) EOCAUSD 3.1 mmProposed
2.8 2,80exchange ratio
for EOCA
2.6 2.64
2.51Exchange ratio
2.4 based on price
21-Apr 6-May 21-May5-Jun20-Junfrom the OPA
CLP Price per share
330 of EOCA (CLP)
320 318
310 Price proposed
301
300 for the OPA
(CLP)
290
285Price of EOCA
280 applying a ratio
270 of 2.8 to the ENI
21-Apr 6-May 21-May5-Jun20-Junprice
CLP CLP
300 295 115
Withdrawal price
295 110of EOCA (primary
290 109 105axis)
285 100
280 95Withdrawal price
of ENIA
275 90(secondary axis)
270 85
21-Apr 6-May 21-May5-Jun20-Jun
Strictly Private and Confidential 9
PRELIMINARY VERSION—DRAFT
Summary of the impacts of the terms of the Proposed Operation for ENIA shareholders
Assuming that all minority shareholders in EOCA and CHIA continue with the Merger, it is estimated that the Proposed Operation would have an implied cost for ENIA of USD 121 million (1.5% of its market capitalization). The price of the OPA offer is in line with the estimated price of EOCA.
Company
Valuation Method
Price per share by sum of parts valuation CLP
Price per share by sum of parts valuation (average between methods) CLP
Current market Price of share (1) CLP
Market discount %
Estimated market Price (applying market discount of ENIA) CLP
# shares
Exchange ratios before tax adjustment ENIA
(4) # shares
Adjustments for tax offsets ENIA
Estimated exchange ratios # shares
ENIA
# shares
Exchange ratios of the Proposed Operation ENIA
Implied Premium payable for all shares in EOCA/CHIA %
Premium on the estimated price for each share in EOCA/CHIA(5) CLP
*Implied Premium for ENIA shares net of tax effects (6) USD mm
ENIA
DCF
Multiples
125
122
124
114
8.0%
EOCA
DCF
Multiples
310
310
310
(3)
301
3.1%
285
2.51
0.05
2.56
2.80
9.3%
27
CHIA119
DCF
Multiples
546
548
547
(4)
446
18.5%
503
4.43
0.02
4.44
5.00
12.6%
63
2
Total implied premium: USD 121 million 1.5% of the market capitalization of ENIA
(1) As on June 21, 2016
(2) The current market price of EOCA is distorted by the Proposed Operation
(3) Stock in CHIA is illiquid, and so the price may not necessarily reflect its market capitalization (amount traded in 2016: CLP 14.5 million. Source: Santiago Stock Exchange)
(4) Tax offsets for a total of USD 149 million, agreed by ENIA to compensate EOC Chile and Chilectra Chile for the costs borne as a result of the reorganization process. The parties have agreed that these offsets be included in the exchange ratios and that the total amount be distributed on a pro rata basis based on the post-Merger holdings of ENIA, EOCA, and CHIA in ENIA.
(5) This is the product of the estimated market price and the implied price to be paid per share to all shareholders of ENIA and CHIA, respectively, net of adjustments for tax offsets.
(6) At CLPUSD exchange rate of 679.8. The implied premium is shown net of tax effects, which correspond to the sum of the savings achieved by ENIA if the tax offsets are agreed at the exchange ratios instead of being repaid to EOC Chile and Chilectra Chile directly (should the Merger not take place), plus tax effects attributable to the Merger of USD 29 million for the pro rata compensation that ENIA shareholders would have in the post-Merger ENIA.
Strictly Private and Confidential 10
PRELIMINARY VERSION—DRAFT
Potential market and cash flow benefits for ENIA resulting from the Proposed Operation (1/2)
• As a result of the Merger, there could be new savings in the holding discount of ENIA due to absorption of EOCA, a subsidiary with substantial liquidity
• Assuming that the market sees a high probability that the Merger is completed, it follows that that potential savings is already incorporated in the market price of ENIA, and so, if the Merger does not occur, a holding discount could be generated between ENIA and EOCA.
• Assuming that the holding discount between ENIA and EOCA could be between 0% and 10% (similar to the holding discount of IAM), the potential impact (decrease in the value of ENIA) for ENIA shareholders is estimated between USD 0 and 206 million
• Subject to approval of the OPA offer by the shareholders of EOCA, the float of ENIA would increase after the Proposed Operation, having a positive effect on its liquidity, thereby remaining as one of the most liquid companies traded in the Chilean market.
• While liquidity is a desirable attribute for a company, within the pre- and post-Merger liquidity levels of ENIA, evidence indicates that the impact on liquidity resulting from the Proposed Operation (whether or not it is ultimately completed) should not significantly affect the value of ENIA.
• The Proposed Operation could have a positive impact on the credit risk profile of ENIA, primarily by generating a closeness with operational subsidiaries and their cash flows, eliminating the risk of structural subordination with subsidiaries EOCA and CHIA, and increasing scale
• Such positive impacts, if perceived by the market, could improve the cost of structural debt of the company, reducing its average long-term cost of capital (WACC)
• In certain sensitivity scenarios, the present value of a potential impact for ENIA could be between USD 0 and 73 million.
• It bears mention that if the OPA offer is made in a significant amount, this could weaken the cash position of ENIA, which could affect its credit profile; this must also be considered to evaluate the potential estimated benefit
• Together with the corporate reorganization, ENI presented (prior to approval of the Split) an efficiency plan for the coming years
• Based on that efficiency plan, cost savings in staff and services were identified for ENIA at a holding level for a total in the order (2019) of USD 4 million (before tax)
• The NPV of these efficiencies for ENIA shareholders would be between USD 16 and 21 million
1
Holding Discount • Considerations
•
2
•
Liquidity Considerations •
3 •
Considerations • on impact on risk categorization •
•
4
Potential synergies attributable to the Proposed Operation
Strictly Private and Confidential 11
PRELIMINARY VERSION—DRAFT
Potential market and cash flow benefits for ENIA resulting from the Proposed Operation (2/2)
The Proposed Operation has potential market and cash flow benefits for ENIA shareholders
While those benefits are difficult to appraise, based on the analysis conducted, it is estimated that they could be between USD 16 million and 300 million (between 0.2% and 3.7% of the market capitalization of ENIA)
Range (USD millones)
Value considerations for ENIA of the Proposed Operation
Low-High
Potential savings from decreased holding discount 0-206
Potential impact from greater market liquidity Insignificant
Potential impact from effects on risk categorization 0-73
Potential synergies attributable to the Proposed Operation 16-21
Potential benefit of the Proposed Operation for ENIA shareholders 16 -300
Potential benefit in terms of market capitalization of ENIA (1) 0.2%-3.7%
(1) Market capitalization of USD 8,212 million as on June 21, 2016
Strictly Private and Confidential 12
PRELIMINARY VERSION—DRAFT
Potential strategic and management benefits of the Proposed Operation for ENIA
1. Alignment of interests on operational subsidiaries
A single holding company in Latin America (excluding Chile) Clarity for shareholders on investment policies
2. Increased efficiency in decision-making
Simplification of decision layer between shareholders
Savings in time and costs in decision-making (one Board of Directors)
3. Direct access to cash flows and reduction in minority interests
Simpler corporate structure with greater visibility of assets
Organization of the corporate structure
Current corporate structure(1) Post-Merger corporate structure(1)
With the new corporate structure, cross-shareholdings would be eliminated
ENIA
99.1% 60.0%
CHIA EOCA
ENIA
Hid. El Cachoeira Ampla
Edesur Emgesa Codensa Edegel Edelnor Chocón Dorada Energía
Hid. El Cachoeira Ampla
Edesur Emgesa Codensa Edegel Edelnor Chocón Dorada Energía
(1) In the corporate structure shown, only some of the assets/companies operating in each country are included
Strictly Private and Confidential 13
PRELIMINARY VERSION—DRAFT
Conclusions
The proposed exchange ratio considers an implied premium for minority shareholders of EOC and CHIA equal to 1.5% of the market capitalization of ENIA
This is derived from exchange ratios (at the midpoint of our estimates) of 2.56 shares of ENIA for each share of EOCA, and 4.44 shares of ENIA for each share of CHIA
With respect to the situation at the time the terms of the Proposed Operation were approved (December 2015), according to our estimates using equivalent methods, that premium has declined
The Proposed Operation has the potential to generate earnings for ENIA that should more than make up for the implied premium deriving from the exchange ratios proposed for the Merger
From a market and cash flow point of view, the benefits include (i) synergies in administration expenses and services, (ii) potential savings in holding discounts, and (iii) potential impacts on risk categorization
From a strategic and management point of view, the Proposed Operation would bring about elimination of cross-shareholdings between the holding companies, allowing (i) alignment of interests over operational subsidiaries, (ii) greater efficiency in costs and times for decision-making, and (iii) direct access to cash flows and a reduction in minority interests at ENIA
With respect to EOCA stock acquired through the OPA offer, our conclusion is that the price offered is in line with the price per share in EOCA that should prevail in the market in the absence of the distortions caused by the Proposed Operation
On the other hand, the market and investors are validating the terms of the Proposed Operation, given that the prices have been fluctuating in ranges that would so indicate and with reasonable levels of liquidity
The exchange ratio of shares in ENIA to shares in EOCA has traded above the implied exchange ratio at the price of the OPA offer and below the exchange ratio offered
Stock in EOCA has traded above the price of the OPA offer
Based on this, we conclude that the Proposed Operation is consistent with market conditions and contributes to the best interests of ENIA
Strictly Private and Confidential 14
PRELIMINARY VERSION—DRAFT
BACKGROUND INFO AND DESCRIPTION OF THE PROPOSED OPERATION
Strictly Private and Confidential 15
PRELIMINARY VERSION—DRAFT
Description of the Economic Terms of the Proposed Operation
The economic terms of the Proposed Operation, according to the resolutions adopted during the shareholders’ meeting of ENIA held December 18, 2015, are:
Exchange ratios
Withdrawal rights
Compensation for EOC Chile and Chilectra Chile
OPA for EOCA
2.8 shares of ENIA per share of EOCA
5.0 shares of ENIA per share of CHIA
Shareholders in ENIA, EOCA, and CHIA may exercise their right to withdrawal in the event that the Merger is approved during the respective extraordinary shareholders’ meetings, provided that no shareholder exceeds 65% ownership of ENIA after the Merger
Withdrawal rights may not exceed the following limits:
10.00% of the ownership of ENIA;
7.72% of the ownership of EOCA; and
0.91% of the ownership of CHIA
The price for exercise of withdrawal rights for minority shareholders in ENIA and EOCA will be equal to the weighted average price between 90 and 30 business days prior to the extraordinary shareholders’ meetings whereby the Merger is approved
The price for exercise of withdrawal rights for minority shareholders in CHIA will be equal to the book value of the stock
ENIA agrees to compensate EOC Chile and Chilectra Chile for the tax costs borne by EOC Chile and Chilectra Chile (net of tax credits) as a result of the reorganization process, in the event that the Merger does not take place by December 31, 2017
Those tax costs (net of tax credits) total USD 149 million (USD 132 million borne by EOC Chile and USD 17 million borne by Chilectra Chile)
ENIA will present a public offer to acquire stock for all shares and ADRs (American Depositary Receipts) not owned by ENIA, i.e., for 40.02% of the shares in EOCA
The OPA offer will be made at a price of CLP 285 per share, will require approval for the Merger, and will require that, after the period for exercise of withdrawal rights, no withdrawal has been made outside the limits defined for ENIA, EOCA and CHIA
Strictly Private and Confidential 16
PRELIMINARY VERSION—DRAFT
Structure of the Proposed Operation
Splitting of ENI, EOC, and Chilectra
Enel SpA
100.0%
Enel Enel Iberoamérica Latinoamérica
2
60.6%
ENI Chile
60.6%
ENIA
99.1%
Chilectra Chile
60.0%
EOC Chile
1
99.1%
CHIA
60.0%
EOCA
1. Separation of the assets outside of Chile of Chilectra and EOC into new companies called Chilectra Américas S.A. (CHIA) and Endesa Américas S.A. (EOCA), respectively 2. Splitting of the Chilean assets of ENI into a new company to be called Enersis Chile S.A. (“ENI Chile”)
New companies resulting from the Merger
Merger of EOCA and CHIA into ENIA
Enel SpA
100.0%
Enel Enel Iberoamérica Latinoamérica
60.6%
ENI Chile
99.1%
Chilectra Chile
60.0%
EOC Chile
> 50.0%
ENIA
CHIA EOCA
Merger through absorption
Merger through absorption on the part of ENIA of the companies CHIA and EOCA
The definitive exchange ratios for the Merger must be approved during the respective shareholders’ meetings of ENIA, EOCA, and CHIA
Second stage of the corporate reorganization underway
Strictly Private and Confidential 17
PRELIMINARY VERSION—DRAFT
Stages of the Proposed Operation
December 18, 2015
Extraordinary shareholders’ meetings (“ESAs”) of ENI, EOC, and Chilectra: (i) Approving the Split, and (ii) Proposing terms of exchange for the Merger
April 21, 2016
ENI Chile, EOCA, and CHIA begin trading on the SSE(1) and NYSE(2)
April—July 2016
Period in which the withdrawal price is determined for minority shareholders of ENIA, EOCA, and CHIA
End of August 2016
Start of the OPA offer
End of September/Early October 2016
End of the OPA offer
60 business days
30 to 45 days from the start of the OPA
30 business days
30 days from the ESAs
March 01, 2016
Completion of the Split, resulting in ENI Chile, EOCA, and CHIA
July 05, 2016
Receipt of the reports from the independent appraisers of the Proposed Operation
End of August 2016
ESAs of ENIA, EOCA, and CHIA held to approve the Merger
End of
September 2016
Term for shareholders of ENIA, EOCA, and CHIA to exercise withdrawal rights
3Q 2016
Merger is completed
Stages completed
Pending stages
Source: the Company (1) Santiago Stock Exchange (2) New York Stock Exchange
Strictly Private and Confidential 18
DRAFT
Strictly Private and Confidential
19
PRELIMINARY VERSION—DRAFT
GENERAL CONSIDERATIONS USED IN THE REPORT
Strictly Private and Confidential 20
PRELIMINARY VERSION—DRAFT
Information Used
1. The Company launched a virtual data room through which it delivered:
Presentations made to the Board of Directors by the administration of ENIA with regard to the Proposed Operation
Presentations made by the administration of ENIA with regard to the operations it maintains through its subsidiaries in the various markets Historical financial information for the periods March 2016 and May 2016 for each of the companies involved in the Proposed Operation Projected financial information for the 2016-2020 period for each of the companies involved in the Merger, such information which:
• Was updated in June 2016 based on the business plans of each asset and the market conditions in the respective countries
• Was sent to Credicorp Capital on Thursday, June 9, 2016
• Is the same information delivered to the various independent appraisers of ENIA, EOCA, and CHIA as part of the Proposed Operation
• Was approved by the administration of the Company and is known to the Board of Directors of ENIA
Information and estimates on the impacts of the Proposed Operation
2. Meetings with the administration and technical teams of ENIA Work meetings were held with the administration of the Company
Credicorp Capital asked questions of ENIA, which were answered through the virtual data room, together with other questions posed by other ENIA advisors as part of the evaluation process
3. Public information available in the market: financial and market information services, analysts’ reports, etc.
It bears mention that:
ENIA, EOCA, and CHIA are companies publicly traded on the Santiago Stock Exchange (SSE), and additionally, ENIA and EOCA are listed on the New York Stock Exchange (NYSE), and as such, these companies are subject to oversight by domestic and international regulatory entities, including the SVS, the Securities and Exchange Commission (SEC), and other local regulatory bodies in the countries where they operate
The analysis conducted by Credicorp Capital did not include due diligence of ENIA, EOCA, CHIA or any other companies involved in the Proposed Operation. With regard to accounting, legal, tax, and regulatory issues, the Company was asked to provide its best estimate, opinion, or projections with regard to the impacts of the Merger.
These estimates, opinions, and projections have not been independently verified by experts other than those which appeared at the Company to receive initial response, and have not been independently verified by Credicorp Capital
Strictly Private and Confidential 21
PRELIMINARY VERSION—DRAFT
General Considerations Used in the Report
According to the information made available by ENIA and the opinions contained in the responses provided by the Company to Credicorp Capital, we have made the following assumptions regarding the Proposed Operation:
That it is permitted under Chilean law and in the rest of the countries where ENIA, EOCA, and CHIA operate (Brazil, Colombia, Peru, and Argentina) and that it does not violate any rules in any jurisdiction applicable to ENIA, EOCA, and CHIA
That it does not generate any adverse regulatory, environmental, or competitive effects for ENIA, EOCA, and/or CHIA, their subsidiaries, and/or any other companies remaining after and/or arising from the Proposed Operation
That it does not affect or violate agreements with partners, providers, customers, or any other counterpart of ENIA, EOCA, and/or CHIA, their subsidiaries, and/or any other companies remaining after and/or arising from the Proposed Operation
That it does not involve accounting or tax effects that could have a negative impact on the earnings of ENIA, EOCA, and/or CHIA, their subsidiaries, and/or any other companies remaining after and/or arising from the Proposed Operation, beyond those considered in this Report on the basis of the information provided by the Company
That it does not generate new contingencies for ENIA, EOCA, and/or CHIA, their subsidiaries, and/or any other companies remaining after and/or arising from the Proposed Operation
That it does not affect or violate the agreements of any lending or credit contracts of ENIA, EOCA, CHIA, and/or their subsidiaries that result in material effects on the earnings of any of those companies, including breach, cross-default or cross-acceleration, and/or increased financial costs.
That no liability management processes are incurred that imply material costs for ENIA, EOCA, and/or CHIA, their subsidiaries, and/or any other companies remaining after and/or arising from the Proposed Operation, which are not included in this Report on the basis of the information provided by the Company
That in the event the Proposed Operation is not carried out, the current situation of ENIA would be maintained, in terms of the consolidation, administration, and political and economic rights over the holdings involved in the Proposed Operation
Strictly Private and Confidential 22
ANALYSIS OF THE ECONOMIC TERMS OF THE PROPOSED OPERATION i. Methods Used for Valuation of ENIA, EOCA, and CHIA
PRELIMINARY VERSION—DRAFT
Strictly Private and Confidential 23
PRELIMINARY VERSION—DRAFT
1 DCF Valuation
Method used
Method used for DCF valuation
(+) Income
(-) Costs (+) EBITDA (-) General expenses (-) Tax on operating revenue (-) Investments (CapEx) (-) Working capital requirement
Free cash flow
Discounted to discount rate (WACC)
Value of assets (EV)
(-) Net financial debt + other liabilities(1)
Net equity
Main criteria for DCF valuation
Type of valuation
Valuation of assets individually and subsequent sum of parts calculation based on the stake of ENIA, EOCA, and CHIA in each asset
Currency
Projections in local currency converted to USD based on exchange rate project for each year delivered by the Company
Projected horizon
5-year projection (2016 to 2020)
Date of valuation
May 31, 2016
Terminal value
Calculated according to the terminal EV multiple/EBITDA per asset, which was determined based on current and historical average forward multiples for electricity companies in LatAm
Companies through completion
Generation assets in Argentina and Fortaleza, Cachoeira and Cien, were valued through the completion of their operations
Discount rate
Risk-free rate: US Treasury 20 years
Average country risk from the last 30 days based on 10-year Credit Default Swap (CDS) for
Brazil, Colombia, and Peru, and Emerging Markets Bonds Index (EMBI) for Argentina Asset beta per business, based on sample of Gx, Dx, and Tx companies in LatAm 6.0% market risk premium
Debt interest rate based on bond returns of selected companies by country
Corporate tax rate
Laws current in each country, based on information delivered by the Company(2)
(1) Net financial debt = financial debt—cash and cash equivalents. Other liabilities are considered based on information delivered by the Company (2) With the exception of Coelce, which used the tariff regime specified by the Company
Strictly Private and Confidential 24
PRELIMINARY VERSION—DRAFT
PRELIMINARY VERSION—DRAFT
1 DCF Valuation
General Assumptions
For DCF valuation projects were used for each asset/company involved in the Proposed Operation for the 2016 to 2020 period
The projections were updated by the Company in June 2016
An updated macroeconomic framework was delivered that included projections on exchange rate, inflation GDP growth, and other factors.
While current macroeconomic contingencies of each country where the assets involved in the Proposed Operation operate were considered, a scenario of regulatory and tax stability was assumed based on the available information
Criteria relating to discount rates or weighted average cost of capital (“WACC”) were calculated by Credicorp Capital, based on current market conditions
To calculate net financial debt and other financial liabilities as of May 2016 for each of the valued assets, information provided by the Company was used.
Terminal EBITDA multiple used by business and country
To determine the terminal value of each asset (with the exception of assets valued through termination), an EV/EBITDA multiple was applied to terminal EBITDA estimated for 2020 The terminal EBITDA was determined based on the projections provided by the Company and adjustments made by Credicorp Capital The terminal multiple used was determined based on the EV/EBITDA multiple expected for 2017 for electricity generation, distribution, and transmission companies in LatAm and adjustments made by Credicorp Capital
Terminal flow of assets with termination of concession or useful life
For certain assets that have a date of termination for their concessions or authorizations for operation or a year of termination of useful life, the flows were discounted through the respective date of termination The projects from 2021 on were determined based on assumptions provided by the Company
Year concession Year authorization
Country Generation Distribution Transmission
Argentina n.a. 3.7x 3.0x Brazil n.a. 5.0x n.a. Colombia 9.0x 7.4x n.a.
Peru 7.9x 7.4x n.a.
Country GenerationDistributionTransmission
Argentina n.a.3.7x3.0x
Brazil n.a.5.0xn.a.
Colombia 9.0x7.4xn.a.
Peru 7.9x7.4xn.a.
Year concession Year authorizationYear useful
Country Business Assetto operate
endslife ends
ends
Gx Chocón2023n.a.n.a.
Gx Costaneran.a.n.a.2022
Gx Docksudn.a.n.a.2025
Gx Fortalezan.a.2031n.a.
Gx Cachoeira2027n.a.n.a.
Tx Cien2022n.a.n.a.
Source: Capital IQ and Credicorp Capital
Strictly Private and Confidential 25
PRELIMINARY VERSION—DRAFT
1 DCF Valuation
Discount rates used by business and country
Cost of
Cost of equity debt
Colombia Brazil Peru Argentina Americas
Gx Dx Gx Tx Dx Gx Dx Gx Tx Dx ENIA EOCA CHIA
Risk-free rate (20-year UST) 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1%
Country risk premium(1) 3.0% 3.0% 4.2% 4.2% 4.2% 2.2% 2.2% 5.1% 5.1% 5.1% 3.5% 3.4% 3.9%
Risk-free rate 5.1% 5.1% 6.3% 6.3% 6.3% 4.3% 4.3% 7.2% 7.2% 7.2% 5.5% 5.5% 6.0%
Tax rate (2) 34.0% 34.0% 34.0% 34.0% 34.0% 26.0% 26.0% 35.0% 35.0% 35.0% 32.2% 31.8% 33.1% Asset beta 0.54 0.52 0.50 0.46 0.47 0.54 0.52 0.88 0.88 0.88 0.55 0.56 0.59 Debt/market capitalization 24.7% 36.5% 24.7% 53.5% 36.5% 24.7% 36.5% 24.7% 53.5% 36.5% 31.9% 27.5% 35.9%
Equity beta 0.63 0.65 0.58 0.62 0.59 0.64 0.66 1.02 1.19 1.09 0.67 0.67 0.73
Risk premium 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Cost of equity 8.8% 9.0% 9.8% 10.0% 9.8% 8.1% 8.3% 13.3% 14.3% 13.7% 9.6% 9.5% 10.4%
Risk-free rate (20-year UST) 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1%
Credit spread 4.0% 4.0% 6.0% 6.0% 6.0% 3.2% 3.2% 8.0% 8.0% 8.0% 5.0% 4.9% 5.8%
Cost of debt (before tax) 6.1% 6.1% 8.1% 8.1% 8.1% 5.3% 5.3% 10.1% 10.1% 10.1% 7.0% 6.9% 7.8%
WACC (USD) 7.9% 7.6% 8.9% 8.4% 8.6% 7.3% 7.1% 12.0% 11.6% 11.8% 8.4% 8.5% 9.0%
Source: Bloomberg, JP Morgan, Capital IQ, and Credicorp Capital. Data as on June 21, 2016 Dx: distribution; Gx: generation; Tx: transmission
For ENIA, EOCA, and CHIA, a discount rate was determined based on the proportion of the EBITDA estimated for 2016 by country and business of their respective assets/subsidiaries
(1) For Colombia, Brazil, and Peru, the average Credit Default Swap (CDS) from the last 30 days was used. For Argentina, the average Emerging Markets Bonds Index (EMBI) from the last 30 days was used (2) This corresponds to the long-term corporate tax rate, based on information delivered by the Company
Strictly Private and Confidential 26
PRELIMINARY VERSION—DRAFT
2 Valuation through Multiples
Summary of multiples used
With the exception of the companies that were valued based on market capitalization (see table at lower left), the rest of the companies have been valued based on the market multiples shown below
Summary of multiples used by country and business
Country/ EV/EBITDA P/Earnings
Business 2016E 2017E2016E2017E
AR Gx 3.1x2.4x10.3x6.6x
AR Dx 5.0x3.7x10.9x5.3x
AR Tx 5.5x4.4xn.a.n.a.
BR Gx 6.7x5.9x12.6x10.4x
BR Dx 5.8x5.7xn.a.n.a.
BR Tx 6.9x7.1x9.9x9.6x
CO Gx 8.6x8.5x14.4x14.0x
CO Dx 7.6x7.4x10.4x10.2x
PE Gx 7.8x7.9x11.2x12.0x
Companies valued based on market cap
Country/ Participation (2)
Company
Business ENIAEOCACHIA
AR Gx Endesa Costanera 45.4%75.7%0.0%
BR Dx Coelce 64.9%21.9%6.6%
PE Gx Edegel 58.6%62.5%0.0%
PE Dx Edelnor 75.5%0.0%15.6%
Country/ EV/EBITDAP/Earnings
Company
Business 2016E2017E2016E2017E
AR Gx YPF3.4x2.7x12.3x7.8x
AR Gx Petrobras2.8x2.0x8.3x5.5x
Median3.1x2.4x10.3x6.6x
AR Dx Edenor5.0x3.7x10.9x5.3x
Median5.0x3.7x10,9x5.3x
AR Tx Transener5.5x4.4x7.3x3.1x
Median5.5x4.4x7.3x3.1x
BR Gx AES Tietê6.7x5.9x11.4x9.2x
BR Gx CESP5.8x5.6x15.2x10.4x
BR Gx Tractebel Energia6.9x6.1x12.6x11.8x
Median6.7x5.9x12.6x10.4x
BR Dx Eletropaulo5.7x3.9x8.0x4.4x
BR Dx Equatorial Energia11.0x10.0x14.5x11.5x
BR Dx Light5.8x4.8x23.3x6.2x
BR Dx CPFL Energia10.4x9.4x21.4x16.4x
BR Dx EDP5.9x5.7x12.0x12.0x
BR Dx CEMIG5.7x6.1x5.8x5.8x
BR Dx COPEL5.4x4.5x6.1x4.9x
Median5.8x5.7x12.0x6.2x
BR Tx CTEEP20.4x10.4x29.2x18.3x
BR Tx TAESA6.9x6.7x7.2x7.3x
BR Tx Alupar6.8x7.1x9.9x9.6x
Median6.9x7.1x9.9x9.6x
CH Gx EOC Chile9.3x8.9x13.9x12.9x
CH Gx AES Gener10.5x10.0x17.4x17.7x
CH Gx Colbún8.5x8.7x14.9x14.7x
CH Gx E.CL(3)6.3x7.3x18.4x22.8x
PE Gx Edegel8.8x8.4x13.9x13.2x
PE Gx Engie Energía6.8x7.5x8.5x10.7x
Median8.6x8.5x14.4x14.0x
PE Dx Luz del Sur8.8x8.4x11.8x11.3x
PE Dx Edelnor6.4x6.4x9.1x9.2x
Median7.6x7.4x10.4x10.2x
PE Gx Edegel8.8x8.4x13.9x13.2x
PE Gx Engie Energía6.8x7.5x8.5x10.7x
Median7.8x7.9x11.2x12.0x
Source: Capital IQ, companies’ financial statements, and Credicorp Capital. Data as on June 21, 2016 Dx: distribution; Gx: generation; Tx: transmission
(1) Given that in Colombia there are no Gx and Dx companies traded publicly with sufficient liquidity, a sample of companies from Chile and Peru was used for Gx and Dx, respectively.
(2) Considers direct and indirect stake
(3) The E.CL 2016 P/Earnings multiple does not include the windfall resulting from sale of 50% of its subsidiary Transmisora Eléctrica del Norte S.A.
Strictly Private and Confidential 27
PRELIMINARY VERSION—DRAFT
ANALYSIS OF THE ECONOMIC TERMS OF THE PROPOSED OPERATION ii. Valuation of ENIA, EOCA, and CHIA
Strictly Private and Confidential 28
PRELIMINARY VERSION—DRAFT
1 DCF Valuation
Results of the valuation by asset/company
Proportional equity value
Net
Value ofEquity
Asset financialENIAENIA
Country type Asset Assets (EV)debt(1)valuepre-MergerEOCACHIAENIA individual post-Merger
USD millionsUSD millionsUSD millionsUSD millionsUSD millionsUSD millionsUSD millionsUSD millions
Gx Hidroeléctrica El Chocón296622349215300153
Gx Endesa Costanera112615023380038
Gx Central Dock Sud2104216868006868
Dx Edesur5241873382422115127243
Tx Cía. Transmisión del Mercosur-325-27-23-10-3-14-27
Tx Transportadora de Energía del Mercosur-225-27-23-10-3-14-27
Argentina Other Endesa Cemsa23-124201101324
H Southern Cone00000000
H Distrilec00000000
H Endesa Argentina-2-3111001
H Hidroinvest00000000
Gx Cachoeira Dorada389-3842635915848217422
Gx Fortaleza290628423910532144282
Dx Coelce1,27628698964221666447729
Brazil Dx Ampla Energía1,33093139936769146181396
Tx Cien2891227723410331141275
Other EN-Brasil Comercio y Servicios1781177150662090176
H Enel Brasil-483-428-55-46-20-6-28-55
Gx Emgesa6,1761,6054,5711,7241,22909872,216
Dx Codensa3,2506052,6451,26402441,0221,266
Colombia Other Emgesa Panamá00000000
Other Soc. Portuaria Central Cartagena10000000
Gx Chinango36228334157167056223
Gx Edegel2,4191312,2881,3411,42904841,913
Gx Piura3534530729700297297
Peru Dx Edelnor1,7854531,3321,00602088011,008
H Caboblanco-4-8440044
H Distrilima-5-272222071622
H Generandes3-1332013
H Generalima-3740-77-7700-77-77
- H ENI Américas-230-1,12989989900899899
Ame ricas H EOC Américas-25-603521350035
H Chilectra Américas-23-432020020020
Gx: generation; Dx: distribution; Tx: transmission; H: holding company
(1) Net financial debt + other financial liabilities as of May 2016, based on information provided by the Company
Strictly Private and Confidential 29
PRELIMINARY VERSION—DRAFT
1 DCF Valuation
Range of valuation of ENIA, EOCA, and CHIA
Equity value Baseline
based on DCF valuation
USD millions
ENIA 9,023
EOCA 3,744
CHIA 924
Range of equity value
Low High
USD millions USD millions
8,559 ? 9,496
3,562 ? 3,929
855 ? 995
Change in terminal EBITDA multiple
Change in terminal EBITDA multiple
Change in terminal EBITDA multiple
Rationalization of the value of net equity of ENIA (USD millions)
Rationalization of the value of net equity of EOCA (USD millions)
Rationalization of the value of net equity of CHIA (USD millions)
Change in discount rate (WACC)
Change in discount rate (WACC)
Change in discount rate (WACC)
0.3% 0.0%-0.3%
-5.0% 8,559 8,4348,541
0.0% 8,695 9,0239,121
5.0% 9,261 9,3789,496
0.3% 0.0%-0.3%
-5.0% 3,562 3,5033,547
0.0% 3,600 3,7443,785
5.0% 3,834 3,8813,929
0.3% 0.0%-0.3%
-5.0% 855 839854
0.0% 880 924938
5.0% 962 978995
Strictly Private and Confidential 30
PRELIMINARY VERSION—DRAFT
2 Valuation by Multiples
Results of valuation by asset/company
Proportional equity value
Net
ValueEquity
Asset financialENIAENIA
Country type Asset Of asset (EV)debt(1)valuepre-MergerEOCACHIAENIA individual post-Merger
USD millionsUSD millionsUSD millionsUSD millionsUSD millionsUSD millionsUSD millionsUSD millions
Gx Hidroeléctrica El Chocón301622389315600156
Gx Endesa Costanera192-182119615900159
Gx Central Dock Sud1774213554005454
Dx Edesur6541874673352159176337
Tx Cía. Transmisión del Mercosur725-18-15-7-2-9-18
Tx Transportadora de Energía del Mercosur725-18-15-7-2-9-18
Argentina Other Endesa Cemsa1-1221012
H Southern Cone00000000
H Distrilec00000000
H Endesa Argentina-2-3111001
H Hidroinvest00000000
Gx Cachoeira Dorada730-3876864628486390761
Gx Fortaleza537653144819760270527
Dx Coelce1,21528692960220362419684
Brazil Dx Ampla Energía1,25793132630057119147323
Tx Cien4141240233914945205399
Other EN-Brasil Comercio y Servicios11100001
H Enel Brasil-483-428-55-46-20-6-28-55
Gx Emgesa5,5781,6053,9731,4991,06808581,926
Dx Codensa2,9346052,3281,11202159001,114
Colombia Other Emgesa Panamá00000000
Other Soc. Portuaria Central Cartagena00000000
Gx Chinango36528336158168057225
Gx Edegel2,1921312,0611,2081,28804361,723
Gx Piura3814533632400324324
Peru Dx Edelnor1,5124531,0598000165636801
H Caboblanco-4-8440044
H Distrilima-5-272222071622
H Generandes3-1332013
H Generalima-3740-77-7700-77-77
- H ENI Américas-230-1,12989989900899899
Ame ricas H EOC Américas-25-603521350035
H Chilectra Américas-23-432020020020
Gx: generation; Dx: distribution; Tx: transmission; H: holding company
(1) Net financial debt + other financial liabilities as of May 2016, based on information provided by the Company
Strictly Private and Confidential 31
PRELIMINARY VERSION—DRAFT
2 Valuation by Multiples
Range of valuation of ENIA, EOCA, and CHIA
Equity value based on
Baseline
Multiples
valuation
USD millions
ENIA
8,832
EOCA
3,737
CHIA
928
Range of equity value
Low
High
USD millions
USD millions
8,495
?
9,169
3,613
?
3,862
874
?
982
Rationalization of the value of net equity Rationalization of the value of net equity Rationalization of the value of net equity of ENIA (USD millions) of EOCA (USD millions) of CHIA (USD millions)
Change in EV/EBITDA multiple
-
Change in EV/EBITDA multiple
Change in EV/EBITDA multiple
Change in P/Earnings multiple
Change in P/Earnings multiple
Change in P/Earnings multiple
-5.0% 0.0%5.0%
-5.0% 8,495 8,6118,726
0.0% 8,717 8,8328,947
5.0% 8,938 9,0539,169
-5.0% 0.0%5.0%
-5.0% 3,613 3,6653,717
0.0% 3,685 3,7373,789
5.0% 3,758 3,8103,862
-5.0% 0.0%5.0%
-5.0% 874 885896
0.0% 917 928939
5.0% 960 971982
Strictly Private and Confidential 32
PRELIMINARY VERSION—DRAFT
Summary of valuation of ENIA, EOCA, and CHIA by sum of parts
The valuation of ENIA, EOCA, and CHIA by sum of parts (prior to market discounts) results in a cross-method average share price of CLP 124, CLP 310, and CLP 547 per share, respectively
Company
Valuation method
Valuation by sum of parts USD mm
Number of shares # mm
Price per share by sum of parts valuation (1) CLP
Price per share, average between methods CLP
Current market Price of share (2) CLP
Market discount %
ENIA
DCF Multiples
9,023 8,832
49,093
125 122
124
114
8.0%
EOCA
DCF Multiples
3,744 3,737
8,202
310 310
310
301
3.1%
CHIA
DCF Multiples
924 928
1,151
546 548
547
446
18.5%
The current market price of is distorted by the Proposed Operation
Stock in CHIA is illiquid, and so the price may not necessarily reflect its market capitalization Amount traded in 2016(3): CLP 14.5 million
Source: Santiago Stock Exchange (1) CLPUSD exchange rate of 679.8. (2) As on June 21, 2016 (3) Source: Santiago Stock Exchange
Strictly Private and Confidential 33
PRELIMINARY VERSION—DRAFT
ANALYSIS OF THE ECONOMIC TERMS OF THE PROPOSED OPERATION iii. Estimate of the Exchange Ratios of the Proposed Operation
Strictly Private and Confidential 34
PRELIMINARY VERSION—DRAFT
Estimate of the Exchange Ratios of the Merger
The cross-valuation method average exchange ratios are
(i) 2.56 shares of ENIA for each share of EOCA and (ii) 4.44 shares of ENIA for each share of CHIA
Exchange ratios based on DCF valuations
Exchange ratios based on market criteria valuations
Estimate of exchange ratios
Exchange ratios of ENIA shares Exchange ratios of ENIA shares for each EOCA share for each CHIA share
Baseline exchange ratio 2.484.37
Adjustment for tax offset (1) 0.050.02
Exchange ratio after tax offset 2.544.39
Baseline exchange ratio 2.534.48
Adjustment for tax offset (1) 0.050.02
Exchange ratio after tax offset 2.594.50
Average exchange ratio based on both methods 2.56 4.44
Proposed exchange ratios 2.805.00
Discounts on proposed exchange ratios 9.3% 12.6%
(1) Tax offsets for a total of USD 149 million, agreed by ENIA to compensate EOC Chile and Chilectra Chile for the costs borne as a result of the reorganization process. The parties have agreed that these offsets be included in the exchange ratios and that the total amount be distributed on a pro rata basis based on the post-Merger holdings of ENIA, EOCA, and CHIA in ENIA.
Strictly Private and Confidential 35
PRELIMINARY VERSION—DRAFT
Rationalization of exchange ratios of shares in EOCA in various valuation scenarios
Based on the rationalization exercise performed, the exchange ratio of shares in ENIA for each share in EOCA falls within a range of between 2.48 and 2.66, considering both valuation methods
Below an rationalization analysis is presented of the exchange ratios for both valuation methods
To this end, analysis was performed on the impact on the exchange ratio of a 15% increase in the equity value of each of the assets, maintaining the rest of the assets at their base valuation
The results of the most significant assets were as follows:
Rationalization of exchange ratios based on DCF
Codensa 2.2,48
Edelnor 2.2,49
Piura 2.2,52
Edesur 2.2,53
Ampla Energía 2.2,53
Coelce 2.2,53
Central Dock Sud 2.2,53
Cien 2.2,54
Fortaleza 2.2,54
Cachoeira Dorada 2.2,54
Endesa Costanera 2.2,54
Chinango 2.2,55
Hidroeléctrica El Chocón 2.2,55
Emgesa 2.2,58
Edegel 2.2,62
2.2,4 2.,5 2,2.62.2,77
Rationalization of exchange ratios based on Multiples
Codensa 2.2,54
Edelnor 2.2,55
Piura 2,57
Edesur 2.2,57
Ampla Energía 2.2,588
Coelce 2.2,58
Central Dock Sud 2.2,588
Cien 2.2,59
Fortaleza 2.2,59
Cachoeira Dorada 2.2,59
Endesa Costanera 2.2,60
Hidroeléctrica El Chocón 2.2,60
Chinango 2,2.60
Emgesa 2.2,63
Edegel 2.2,666
2.2,4 2., 5 2.2,62.2,77
Strictly Private and Confidential 36
PRELIMINARY VERSION—DRAFT
Rationalization of exchange ratios of shares in CHIA in various valuation scenarios
Based on the rationalization exercise performed, the exchange ratio of shares in ENIA for each share in EOCA falls within a range of between 4.27 and 4.59, considering both valuation methods
Below an rationalization analysis is presented of the exchange ratios for both valuation methods
To this end, analysis was performed on the impact on the exchange ratio of a 15% increase in the equity value of each of the assets, maintaining the rest of the assets at their base valuation
The results of the most significant assets were as follows:
Rationalization of exchange ratios based on DCF
Emgesa 4.4,27
Edegel 4.4,29
Piura 4.4,37
Chinango 4.4,3837
Hidroeléctrica El Chocón 4.4, 38
Central Dock Sud 4.4,38
Endesa Costanera 4.4,39
Coelce 4.4,39
Cien 4.4,39
Fortaleza 4.4,39
Cachoeira Dorada 4.4, 39
Edesur 4.4,45
Edelnor 4.4,46
Ampla Energía 4.4,46
Codensa 4.4,46
4.4,2 4.,34.4,44.4,54.,64.,7
Rationalization of exchange ratios based on Multiples
Emgesa 4,39
Edegel 4,4.41
Piura 4,4.47
Chinango 4.494,
Endesa Costanera 4.494,
Hidroeléctrica El Chocón 4.494,
Central Dock Sud 4.504,
Coelce 4.504,
Cien 4.514,
Fortaleza 4.514,
Cachoeira Dorada 4.514,
Edelnor 4.564,
Ampla Energía 4,56
Codensa 4.574,
Edesur 4.594,
4.24,2 4.34,3 4.44,4.54,54.64,4.74,7
Strictly Private and Confidential 37
PRELIMINARY VERSION—DRAFT
ANALYSIS OF THE ECONOMIC TERMS OF THE PROPOSED OPERATION iv. Analysis of the Economic Terms of the Proposed Operation
Strictly Private and Confidential 38
PRELIMINARY VERSION—DRAFT
Impact on ENIA shareholders of the economic terms with regard to EOCA
Assuming that all minority shareholders in EOCA continue with the Merger, it is estimated that the Merger would have an implied cost for ENIA of USD 119 million (1.4% of the market capitalization of ENIA). The price of the OPA offer is in line with the estimated price per share of EOCA
Valuation methodDCFMultiples
Estimated equity value by sum of parts USD mm3,7443,737
Price per share by sum of parts valuation (1) CLP310310
Price per share by sum of parts valuation (average between methods) CLP310
ENIA market discount %8.0%
Estimated market Price (assumes ENIA market discount) CLP285
Price of the OPA offer CLP285
Premium (discount) on the estimated price of the OPA offer %-0.1%
Price of EOCA applying exchange ratio of 2.8 to adjusted share price of ENIA (2) CLP312
Premium (discount) on the estimated price of EOCA %9.3%
Premium on the estimated price for each share of EOCA CLP27
Number of minority shares in EOCA # mm3,282
Implied premium for all minority shares in EOCA (1) USD mm131
Tax effects (additional to the adjustments for tax offsets) (3) USD mm-13
Implied premium net of tax effects USD mm119
The price per share of EOCA is estimated at CLP 285
The price of the OPA offer is in line with the estimated price per share
Implied premium of USD 119 million (CLP 27 per share of EOCA minority shareholder net of tax effects)
1.4% of the market capitalization of ENIA
Impacts for 310 25
ENIA 285
share- Current market discount of
holders ENIA stock (8.0%)
(CLP)
Price per share in ENIA marketEstimated price per
EOCA by sum of discountshare of EOCA
parts
Premium of 9.3% Discount of 0.1% 312
285 CLP 27 per share
Price of EOCA Price of the OPA applying the offer adjusted exchange ratio (2)
(1) CLPUSD exchange rate of 679.8
(2) CLP 113.7 as on June 21, 2016. The price is adjusted based on the tax offsets agreed by ENIA to compensate EOC Chile and Chilectra Chile for the tax costs borne as a result of the reorganization process
(3) Tax effects are the sum of the savings achieved by ENIA when the tax offsets are agreed at the exchange ratios instead of being repaid to EOC Chile and Chilectra Chile directly (should the Merger not take place), and of the tax effects attributable to the Merger of USD 29 million for the pro rata compensation that ENIA shareholders would have in the post-Merger ENIA.
Strictly Private and Confidential 39
PRELIMINARY VERSION—DRAFT
Impact on ENIA shareholders of the economic terms with regard to CHIA
Assuming that all minority shareholders in CHIA continue with the Merger, it is estimated that the Merger would have an implied cost for ENIA of USD 2 million (0.01% of the market capitalization of ENIA).
Valuation methodDCFMultiples
Estimated equity value by sum of parts USD mm924928
Price per share by sum of parts valuation (1) CLP546548
Price per share by sum of parts valuation (average between methods) CLP547
ENIA market discount %8.0%
Estimated market Price (assumes ENIA market discount) CLP503
Price of CHIA applying exchange ratio of 5.0 to adjusted price of ENIA share (2) CLP567
Premium (discount) on the estimated price of CHIA %12.6%
Premium on the estimated Price for each share of CHIA CLP63
Number of minority shares of CHIA # mm10
Implied premium for all minority shares in CHIA (1) USD mm1
Tax effects (additional to the adjustments for tax offsets) (3) USD mm1
Implied premium net of tax effects USD mm2
Impacts for ENIA shareholders (CLP)
The price per share of CHIA is estimated at CLP 503
Implied premium of USD 2 million (CLP 63 per share of CHIA minority shareholder net of tax effects)
0.01% of the market capitalization of ENIA
547 44
503
Current market discount of ENIA stock (8.0%)
Price per share in EOCA by sum of parts
ENIA market discount
Estimated price per share of EOCA
Price of the OPA offer
Price of EOCA applying the adjusted exchange ratio (2)
(1) CLPUSD exchange rate of 679.8
(2) CLP 113.7 as on June 21, 2016. The price is adjusted based on the tax offsets agreed by ENIA to compensate EOC Chile and Chilectra Chile for the tax costs borne as a result of the reorganization process.
(3) Tax effects are the sum of the savings achieved by ENIA when the tax offsets are agreed at the exchange ratios instead of being repaid to EOC Chile and Chilectra Chile directly (should the Merger not take place), and of the tax effects attributable to the Merger of USD 29 million for the pro rata compensation that ENIA shareholders would have in the post-Merger ENIA.
Strictly Private and Confidential 40
PRELIMINARY VERSION—DRAFT
Impact on ENIA shareholders of the economic terms of the Proposed Operation
Assuming that all minority shareholders of EOCA and CHIA agree to exchange their shares in the Merger, this would represent a cost for ENIA shareholders of USD 121 million (1.5% of the market capitalization of ENIA)
EOCACHIA
Cost for the minority shares of EOCA and CHIA (formerly owned by ENIA) USD mm 1311.0
Savings from tax compensation (1) USD mm-21-0.1
Tax effects (2) USD mm81.6
Tax effects (additional to the tax offset included in the exchange ratio) USD mm-131.5
Implied cost for ENIA shareholders (net of tax effects) USD mm1192.5
Implied cost for ENIA shareholders (net of tax effects) USD mm121
Implied cost as percentage of market capitalization of ENIA (3) %1.5%
2121
Implied cost for 119
Equal to 1.5% of the
ENIA shareholders market capitalization of
(USD millions) ENIA
Premium payable to Premium payable to
minority shareholders of minority shareholders ofTotal premium payable
EOCA CHIA
(1) They correspond to ENIA’s savings if tax offsets are agreed at the exchange rations instead of direct compensation to EOC Chile and Chilectra Chile (in the event the Merger is not completed) (2) Tax effects attributable to the Merger of USD 29 million on a pro rata basis of ENIA at post-Merger ENIA
(3) Market capitalization of USD 8,212 million as on June 21, 2016
Strictly Private and Confidential
41
PRELIMINARY VERSION—DRAFT
MARKET AND CASH FLOW CONSIDERATIONS OF THE PROPOSED OPERATION i. Holding Discount Considerations
5
Strictly Private and Confidential
42
PRELIMINARY VERSION—DRAFT
Potential savings from the holding discount of ENIA from absorption of subsidiary EOCA
As a result of the Merger, there could be new savings from the holding discount of ENIA due, to absorption of EOCA, a subsidiary with substantial liquidity
ENIA Potential savings in
99.09% 59.98% holding discount
CHIA EOCA
Holding company Holding company
Reduced float equal to Significant float equal
0.91% to 40.02% of
of ownership ownership
Insignificant liquidity Significant liquidity
No price registered with ADTV(1) of USD
3.1 million
Operational assets/subsidiaries
Direct stake of ENIA in operational subsidiaries
Potential savings from the holding discount of ENIA from absorption of subsidiary EOCA, a highly liquid subsidiary that is publicly traded
Assuming that the market sees a high probability that the Merger is completed, it follows that that potential savings is already incorporated in the market price of ENIA, and so, if the Merger does not occur, a holding discount could be generated between ENIA and EOCA.
The holding discount could be generated by the following factors, among others:
Structural subordination to cash flows generated by operational subsidiaries
Direct access to operational subsidiaries that are publicly traded and have significant liquidity
Complexity of the holding structure and decision-making process
Different in relative liquidity between the holding company and its listed subsidiaries
(1) Average Daily Trading Volume. Source: Bloomberg. Calculated beginning on the date the companies started to be traded on the stock exchange (April 21, 2016) through June 21, 2016.
Strictly Private and Confidential
43
PRELIMINARY VERSION—DRAFT
Holding discounts in the Chilean market
The holding discount in Chile ranges from IAM (10%), a holding company with limited diversification and complexity, to Quiñenco (35%) and Antarchile (42%), holding companies with greater diversification and lower liquidity
Holding companies in Chile with underlying assets that are publicly
traded(1)
Holding company Underlying listed asset(s)
Antarchile Copec, Colbún
Almendral Entel
ENI Chile EOC Chile, Chilectra Chile
IAM Aguas Andinas
Quiñenco Banco de Chile, CSAV, CCU, SAAM, Techpack
Current holding discounts in Chile
42%
35%
Median: 30% 30%
14%
10%
IAM ENI Chile(2) Almendral QuiñencoAntarchile
Change in holding discounts in Chile from January 2013 to date
IAM ENI Chile(2) AlmendralQuiñencoAntarchile
50%
40% 42.4%
30% 35.5%
20% 29.5%
10% 14.3%
10.1%
0%
2013 2014 20152016
Source: Credicorp Capital, Bloomberg, and SVS. Data as on June 21, 2016
Avg. Max.Min.Current
IAM 11.6% 34.9%3.4%10.1%
ENI Chile 11.0% 15.2%2.8%14.3%
Almendral 19.0% 29.5%7.2%29.5%
Quiñenco 36.6% 48.7%23.4%35.5%
Antarchile 40.7% 45.7%34.1%42.4%
Average 23.8% 34.8%14.2%26.4%
Median 19.0% 34.9%7.2%29.5%
(1) Not considered in the analysis of the holdings companies. Pampa Calichera (parent company of SQM), Invercap (parent company of CAP), and Campos Chilenos (parent company of Iansa) (2) Administration expenses and sales not considered.
Strictly Private and Confidential
44
PRELIMINARY VERSION—DRAFT
Exercise on the impact on value of ENIA of a potential savings in the holding discount
For the purposes of this exercise, it is assumed that the savings in the holding discount between ENIA and EOCA may be between 0 and 10% (similar to IAM) of the portion of the value of ENIA that comes from its 60% stake in EOCA. This potential savings is estimated between USD 0 and 206 million
Direct stake of ENIA in operational subsidiaries
Current ownership structure of ENIA
ENIA
59.98%
Potential savings from holding discount of ENIA
EOCA
Operational assets/ subsidiaries
Calculation of potential savings in the holdings discount between ENIA and
EOCA
Potential increase in the
Market value ENIA stake in holding discount if the
of EOCA EOCA Merger is not completed
(CLP 285.16/share(1)) (59.98%) (Between 0% and 10%)
Potential impact on the value of ENIA = USD 0—206 million(2)
Equal to between 0% and 2.5% of the market capitalization of ENIA(3)
Based on the exercise above and assuming that the potential savings from the holding discount between ENIA and EOCA in the case the Merger is not completed would be similar to the holding discount of IAM, the potential savings in the holding discount for the shareholders of ENIA is estimated between USD 0 and 206 million
This is equal to a range of between 0% and 2.5% of the market capitalization of ENIA(3)
(1) The price per share of EOC estimated in this Report (2) Considers USDCLP exchange rate of 679.8 (3) Calculated at close of market on June 21, 2016
Strictly Private and Confidential
45
PRELIMINARY VERSION—DRAFT
MARKET AND CASH FLOW CONSIDERATIONS OF THE PROPOSED OPERATION ii. Liquidity Considerations
5
Strictly Private and Confidential
46
PRELIMINARY VERSION—DRAFT
Estimate of the size of the post-Proposed Operation free float of ENIA
It is estimated that the size of the post-Proposed Operation free float of ENIA would be between USD 3,235 (current level) and 4,616 million, such range with would depend on the participation of EOCA shareholders in the OPA offer
1
Scenario 1: with larger free float
Minority shareholders of ENIA, EOCA, and CHIA do not exercise their withdrawal rights, and minority shareholders of EOCA do not participate in the OPA
Post-Merger market capitalization of ENIA (USD millions)
10,433 837
9,596
Current market
discount of
ENIA stock
(8.0%)
Valuation of ENIA ENIA holding Estimated market
post-Merger based discount capitalization of
on average ENIA post-Merger
between methods
Post-Merger ownership structure of ENIA
Parent
group Minority
51.9% shareholder
s
Market cap: 48.1%
USD 9,596 mm Free float
~USD 4,616 million
2
Scenario 2: same size of free float
All minority shareholders of EOCA participate in the OPA
Current market cap of ENIA USD 8,212 million(1)
It is assumed that the market capitalization of ENIA would not change significantly from its current level if:
40.0% of the shareholders of EOCA participate in the OPA
ENIA acquires 40.0% of EOCA with cash on hand (funds collected from the capital increase from 2012)
Parent group
60.6% Minority
shareholders
29.4%
Market cap: Free float
USD 8,212 mm
~USD 3,235 million
Limit to (2)
withdrawal right
10.0%
Considers USDCLP exchange rate of 679.8
(1) Calculated at close of market on June 21, 2016
(2) In the event that as many as 10.0% of ENIA shareholders exercise their withdrawal right, it is assumed that those shares may be placed in the market, so they have been considered as free float
Strictly Private and Confidential
47
PRELIMINARY VERSION—DRAFT
Liquidity outlook of ENIA and EOCA in the Chilean market
According to pro forma estimates of ENIA post-Proposed Operation, ENIA would remain as one of the most liquid companies in the Chilean market. If the Proposed Operation is not performed, it would be expected that EOCA would be among the 20 companies with the largest float in the Chilean market, showing reasonable levels of ADTV(1) for this market
Liquidity of leading Chilean companies(2)
ENIA post-ENIA post-
Merger (ScenarioMerger (Scenario
30 ENI Chile2)1)
(pbs) 25
EOCAEOC ChileENIA
20 ITAU CORP.CHILEFALABELLA
E.CLLAN
UDM/Float 15 CCU
AESGENERCMPCSQM-B
10 CENCOSUD
AGUAS-A BCI
QUINENCO
ADTV 5 SM-CHILE BCOLBUNBSANTANDER
COPEC
0
0 5001,0001,5002,0002,5003,0003,5004,0004,5005,000
Free float (USD millions)
Liquidity based on float and ADTV (USD millions) of leading Chilean companies(3)
ADTV UDM (USD millones)ADTV UDM / Float (pbs)
17.6 16.3 17.617.624.417.715.28.215.28.615.511.921.416.013.514.1 12.913.015.99.213.34.17.5
8.1
5.8 5.75.75.45.14.83.93.83.73.53.43.12.92.72.52.42.12.12.01.10.60.4
.
B-AB
-
1) 2)BCICCU. CL
E
post fusión (escenario FALABELLA post fusión (escenarioENIAENI ChileEOC ChileCENCOSUDSQMCHILECOPECCMPCBSANTANDEREOCALANITAU CORPAGUASAESGENERCOLBUNSM—CHILEQUINENCO
ENIA ENIA
Source: Bloomberg. Data as on June 21, 2016. USDCLP exchange rate 679.80.
(1) Average Daily Trading Volume uses data from the last twelve months (UDM). For ENIA and EOC Chile, data were used beginning March 1, 2016, date on which the Split was completed. For ENI Chile and EOCA, data were used beginning April 21, 2016, date on which the companies resulting from the Split began trading (2) The size of the circle represents market capitalization (3) To calculate ADTV of ENIA post-Merger, it was assumed that the ADTV/Float ratio would remain constant after the Merger
Strictly Private and Confidential
48
PRELIMINARY VERSION—DRAFT
Liquidity outlook of ENIA and EOCA as compared to electricity companies in LatAm
Considering other electricity companies in LatAm and the current float levels and ADTV(1) of ENIA and EOC and potential figures for ENIA post-Merger based on pro forma estimates, at these levels of liquidity, there is not necessarily a correlation between liquidity and valuation by multiples
Liquidity of leading electricity companies in LatAm(2)
18x ENIA post-ENIA post-
EEBMerger (ScenarioMerger (Scenario
15x 2)CPFL1)
AESGENER
2016E 12x EOCA
ENI Chile
9x ENIA
TRACTEBEL
6x CESPCEMIG
EV/EBITDA CELSIA E.CLCOLBUN
3x AES TIETECOPELEDP
0x
0 1234567891011121314
ADTV UDM (USD millions)
Liquidity based on flat and ADTV (USD millions) of leading electricity companies in LatAm(3)
ADTV (USD millones)ADTV UDM / Float (pbs)
60.8 41.3 17.635.067.131.117.617.624.474.947.121.415.99.213.38.09.3
12.3
9.0 8.17.57.55.85.75.75.44.74.23.12.12.01.10.70.4
1)2)EEB
CEMIG fusiónCPFLEDPCOPELfusiónENIAChileTIETECESPEOCACOLBUNECELSIA
TRACTEBEL post (escenariopost (escenarioENIAESAESGENER
ENIAENIA
Source: Bloomberg. Data as on June 21, 2016. USDCLP exchange rate 679.80.
(1) Average Daily Trading Volume uses data from the last twelve months. For ENIA and EOC Chile, data were used beginning March 1, 2016, date on which the Split was completed. For ENI Chile and EOCA, data were used beginning April 21, 2016, date on which the companies resulting from the Split began trading (2) The size of the circle represents market capitalization (3) To calculate ADTV of ENIA after the merger, it was assumed that ADTV/Float would remain constant after the Merger
Strictly Private and Confidential
49
PRELIMINARY VERSION—DRAFT
MARKET AND CASH FLOW CONSIDERATIONS OF THE PROPOSED OPERATION iii. Considerations on Risk Categorization
5
Strictly Private and Confidential
50
PRELIMINARY VERSION—DRAFT
Risk classification considerations for ENIA
The Proposed Operation could have a positive impact on the credit risk profile of ENIA, primarily by generating a closeness with operational subsidiaries and greater access to cash flows, while eliminating the risk of structural subordination and increasing scale in terms of assets
ENIA’s current credit profile
Criterion ENIA
Amount of assets USD 15,278 million(2)
PerúArg
Diversification of markets 24%12%
(Proportionate EBITDA 2016E )(1) Brasil
Col34%
30%
Gx
Business Mix 46%
Dx
(Proportionate EBITDA 2016E)(1) 54%
DFN(3)/EBITDA: 0.89x(2)
Credit metrics DFN(3)/Equity: 0.29x(2)
Current risk classifications
International National
BBB AA-Baa3 -BBB -
- AA-
Positive factors of the Proposed Operation for ENIA’s credit profile
The Proposed Operation is expected to generate the following positive impact on ENIA’s credit profile:
Closeness with operational subsidiaries: as a result of the Proposed Operation, ENIA will consolidate its shareholdings in its operational subsidiaries which are currently distributed between EOCA and CHIA, creating greater autonomy and effectiveness in the management of those subsidiaries, in particular with regard to their financial policies
Greater access to cash flows: the Merger will generate a reduction in minority interests at ENIA in its operational subsidiaries, increasing its earnings as controlling shareholder and its access to cash flows at a holding level. After the merger, the controlling earnings of ENIA are expected to increase from 52% to 64%(4)
Elimination of structural subordination: as a result of the Proposed Operation, ENIA will absorb the subsidiaries that it holds, EOCA and CHIA, thereby eliminating the risk that the indebtedness of those subsidiaries could subordinate the creditors or ENIA individually
Greater scale: The Proposed Operation will cause ENIA to increase its scale in terms of assets, potentially increasing its float and liquidity in capital markets.
It bears mention that if the OPA offer is made in a significant amount, this could weaken the cash position of ENIA, which could affect its credit profile
(1) Figures based on 2016E projections delivered by the Company (2) ENIA figures as of March, 2016. Source: Company financial statements (3) Net financial debt
(4) Source: the Company. Corresponds to the expected increase in ENIA’s controlling earnings for the year 2016
Strictly Private and Confidential
51
PRELIMINARY VERSION—DRAFT
Potential impact for the shareholders of ENIA in the event of a post-merger improvement in the cost of debt
After the merger, ENIA could improve its credit profile, which could positively impact its structural cost of debt. Assuming that ENIA’s cost of debt improves between 0 and 50 bps, the impact attributable to ENIA’s shareholders would be between 0 and 73 million
Considerations and assumptions
If the Merger takes place, there is a possible scenario in which ENIA could see an improvement in its credit profile and potentially its risk classification, which could reduce the average cost of capital for ENIA, post-merger
The sensitivity of ENIA shareholders to impacts resulting from a potential reduction in ENIA’s cost of debt post-merger is expressed by assuming a credit spread differential that could vary from 0 to 50 bps
Sensitivity of the discount rate (WACC) to increases in the cost of
Variation in the valuation of ENIA post-merger attributable to current ENIA shareholders
USD millions
Impact given savings in the cost of debt of ENIA post-Merger
0 bps 25 bps 50 bps
-37 73
Strictly Private and Confidential
52
PRELIMINARY VERSION—DRAFT
MARKET AND CASH FLOW CONSIDERATIONS OF THE PROPOSED OPERATION iv. Impacts on EBITDA
5
Strictly Private and Confidential
53
PRELIMINARY VERSION—DRAFT
Impact on ENIA of potential synergies attributable to the Proposed Operation
Based on the efficiencies estimated by ENI in the first stage of the Proposed Operation, the latter could generate savings in staff & services expenses for the holding company. The NPV of these efficiencies for ENIA shareholders would be between USD 16 and 21 million
Considerations and assumptions
Together with the first stage of company reorganization, ENI submitted an efficiency plan for the subsequent years
In that efficiency plan, cost savings in staff and services were identified for ENIA at a holding level for a total on the order (2019) of USD 4 million (before tax)
Based on information from the company, these savings are are a result of centralized management, leading to (among other things):
A reduction in AFC (administration, finance and control) expenses
Savings in purchasing procedures
For this Report, it is assumed that the efficiency plan is still in effect, in particular due to the savings identified at the holding level for ENIA
Savings trend in staff & services expenses at the holding company level(1)
USD millions, after taxes Assumes
current year
4
3
2
1
2016E 2017E 2018E2019E
Net present value (NPV) of staff & services efficiencies(2)
USD millions
14 18
4
Savings, present value Perpetual present Net present value
2016-2019 value
Sensitivity of NPV to changes in the discount rate (WACC)
USD millions
Change in WACC
7.42% 7.92% 8.42%8.92%9.42%
21 19 181716
Source: the Company and Credicorp Capital
(1) Annual savings under normal operating conditions (year 2019) compared with date for the year 2015 (base exchange rate and homogeneous for 2014), based on information provided by ENIA. Values adjusted in accordance with Chilean tax law (2) A WACC of 8.42% was used for ENIA
Strictly Private and Confidential
54
PRELIMINARY VERSION—DRAFT
STRATEGIC AND MANAGEMENT CONSIDERATIONS OF THE PROPOSED OPERATION FOR ENIA
Strictly Private and Confidential
55
PRELIMINARY VERSION—DRAFT
Strategic and management considerations of the Proposed Operation for ENIA (1/2)
Strategic Benefits of the Proposed Operation
1. Alignment of interests on operational subsidiaries
2. Increased efficiency in decision-making
3. Direct access to cash flows and reduction in minority interests
Organization of the corporate structure
Current corporate structure(1)
ENIA
99.1%60.0%
CHIAEOCA
Hid. El CachoeiraAmpla
Edesur Emgesa CodensaEdegelEdelnor
Chocón DoradaEnergía
Post-Merger corporate structure(1)
With the new corporate structure, cross-shareholdings would be eliminated
ENIA
Hid. El Cachoeira Ampla
Edesur Emgesa CodensaEdegelEdelnor
Chocón Dorada Energía
(1) In the corporate structure shown, only some of the assets/companies operating in each country are included
Strictly Private and Confidential
56
PRELIMINARY VERSION—DRAFT
Strategic and management considerations of the Proposed Operation for ENIA (2/2)
1
Alignment of interests on operational subsidiaries
ENIA would be the only investment holding company in LatAm (except for Chile) for investments in Gx, Dx and Tx Clarity for shareholders on investment policies Interest in assets under a single controlling entity
21.6% 21.1%
ENIA Post-Merger
structure
60.0%
EOCA ENIA
26.9% 62.5% 48.5% 83.6%
Emgesa Edegel Emgesa Edegel
Edegel example: ENI acquires 21.2% of Edegel instead of having been acquired by EOC, which will maintain a 62.5% share in Edegel Emgesa Example ENI has granted to EOC the voting rights relating to Emgesa so that EOC can reflect the control in its consolidation
2
Increased efficiency in decision-making
Simplification of decision-making layers among multiple shareholders multiple layers are ineffective Elimination of potential conflicts of interest among companies and management teams Savings in time and costs in decision-making (one Board of Directors would be maintained)
ENIA Post-Merger
structure
50.9%
60.0% 99.1%
EOCA CHIA ENIA
~ 100%
Enel Enel
37.1% Brasil(1) 11.3% Brasil(1)
(holding) (holding)
99% 99%
Ampla Ampla
Energía Energía
Ampla Energía Example: After the merger, Enel Brazil
would be held through a single vehicle, which would
facilitate relevant decisions in Ampla Energía
3
Direct access to cash flows
Greater cash retention due to a significant reduction of minority interests
Simpler corporate structure with greater visibility of assets
Elimination of cross-shareholdings
Country/ Asset/Direct stakeENIA post -
Business Subsidiary Merger
ENIA EOCA CHIA
AR GxHid. El Chocón-65%-65%
AR GxEOC Costanera-76%-76%
AR GxC. Dock Sud40%--40%
AR DxEdesur38%1%34%72%
BR GxCachoeira51%37%11%99%
BR GxFortaleza51%37%11%99%
BR DxCoelce45%22%7%74%
BR DxAmpla Energía45%17%37%99%
BR TxCien51%37%11%99%
CO GxEmgesa22%27%-48%
CO DxCodensa39%-9%48%
PE GxChinango17%50%-67%
PE GxEdegel21%62%-84%
PE GxPiura97%--97%
PE DxEdelnor60%-16%76%
Currently, the shareholders of ENIA, EOCA and CHIA have
low visibility of non-consolidated assets / subsidiaries
After the merger, the controlling earnings of ENIA are
expected to increase from 52% to 64%(2)
(1) Simplified ownership structure. Edegel holds a 4% share of Enel Brazil
(2) Source: the Company. Corresponds to the expected increase in ENIA’s controlling earnings for the year 2016
Strictly Private and Confidential
57
Santiago Office
Avenida Apoquindo 3721, piso 9 Las Condes 7550177 Chile
+56 (2) 2450 1600