Is Brookfield Asset Management Inc. About to Make a $6 Billion Bet on Brazil?

According to reports, a consortium led by Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM) is close to reaching a deal for a natural gas pipeline network in Brazil.

| More on:
The Motley Fool

Brazil is one of the most economically challenged countries in the world at the moment. A weak commodity price environment, high debt levels, and rampant corruption caused a downward spiral in its economy. It is the type of economic environment that most investors try to avoid.

However, for the contrarian-minded Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM), this is the type of environment where it has had the most success, which is why it is reportedly leading a group of investors to make a $6 billion bet on Brazil’s future.

A once-in-a-lifetime opportunity finally arrives

Earlier this year Brookfield’s infrastructure arm Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) said that it was evaluating “a number of once-in-a-lifetime” opportunities across several sectors in Brazil. It noted that it was “particularly enthusiastic” about gas transmission opportunities mostly because regulated revenue backs these assets. This factor virtually locks in what the company can earn from the asset, significantly reducing its risk.

One of the opportunities that Brookfield appears to have been evaluating was the natural gas pipeline network of troubled Brazilian oil giant Petrobras Brasileiro SA Petrobras (ADR) (NYSE:PBR).

According to a report by Bloomberg, a Brookfield-led consortium is close to sealing a $6 billion deal to acquire an 81% stake in Petrobras’s Nova Transportadora do Sudeste. It is an asset that Petrobras wouldn’t put on the auction block if it didn’t desperately need the cash due to its financial problems, which are forcing the company to pursue a two-year $15 billion asset-sale program to bolster its financial position.

How it fits into Brookfield

According to reports, Brookfield Asset Management is teaming up with sovereign wealth funds from Singapore and China as well as a U.S.-based private equity fund to acquire the stake in the Brazilian natural gas pipeline network. Brookfield Asset Management likely won’t directly invest in the transaction; instead, it will likely use one of its infrastructure-focused private equity funds as the primary acquisition vehicle.

Those funds are flush with cash after Brookfield Asset Management recently closed a nearly $12 billion infrastructure fund, which gives it plenty of cash to make acquisitions. Further, as an asset manager, its primary focus is putting clients’ capital to work, which enables it to earn asset management fees.

While the report does not specifically note any involvement from Brookfield Infrastructure Partners, it could still be involved in the transaction as a minority investor. Brookfield Asset Management has a long history of using its infrastructure partnership as a co-investor on infrastructure acquisitions.

Further, Brookfield Infrastructure Partners has ample money of its own, especially since it has a diminished role in the buyout of Australian transportation business Asciano due to regulatory concerns.

Aside from the historical precedence and its ample liquidity, this is the type of asset Brookfield Infrastructure Partners likes to acquire. Not only is it backed by regulated revenue, but that revenue has upside as Brazil’s economy recovers.

Investor takeaway

It looks like Brookfield Asset Management is about to make a big bet on Brazil. While the rest of the market is worried about the country, Brookfield sees the opportunity to buy exceptional assets at unbeatable prices. It is a philosophy that has served it very well in the past.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt DiLallo owns shares of Brookfield Asset Management and Brookfield Infrastructure Partners. The Motley Fool owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV. Brookfield Infrastructure is a recommendation of Stock Advisor Canada.

More on Investing

Payday ringed on a calendar
Dividend Stocks

Portfolio Payday: 3 TSX Dividend Stocks That Pay Monthly

Investors can expect to earn monthly dividend income for life by adding these three TSX stock to their portfolios.

Read more »

A plant grows from coins.
Dividend Stocks

3 Cheap Canadian Stocks That Offer 7% Dividend Yields

Retirees looking to build pension portfolios have an opportunity to buy great TSX dividend-growth stocks at discounted prices.

Read more »

Man making notes on graphs and charts

3 Magnificent Stocks That I’m “Never” Selling

These three stocks have struggled as of late, but there’s no chance I’m selling anytime soon.

Read more »

dividends grow over time
Dividend Stocks

2 Dividend Stocks That Can Generate $2,000 in Passive Income by 2025

Investing in high-dividend stocks such as Whitecap can help you generate $2,000 in annual passive income by 2025.

Read more »

tsx today
Stock Market

TSX Today: Why Canadian Stocks Could Fall on Thursday, May 30

Falling commodity prices, rising bond yields, and economic risks may continue to weigh on TSX stocks today as investors watch…

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance

2 No-Brainer Stocks to Buy With $5,000

These two stocks could be excellent buys amid this uncertain outlook.

Read more »

Stocks for Beginners

5 Canadian Stocks to Hold in Your TFSA For Decades

The TFSA is the perfect place to compound wealth over decades. Don't pay any tax on these top five growth…

Read more »

edit Woman calculating figures next to a laptop
Dividend Stocks

Should You Invest in BCE Stock for its Dividend?

BCE stock is not yet out of the woods. But this article could change your perspective about the stock and…

Read more »