Enel Américas S.A. (ENELAM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Enel Américas conference call. My name is Victor, and I'll be your operator for today. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] This presentation does not constitute an offer to sell securities and is not soliciting an offer to buy any securities in any jurisdiction. This presentation should in no way be deemed to be an offer or an invitation to participate and the proposed merger described in this presentation. Such transaction is subject to certain corporate, shareholder and regulatory approvals and to the corporate and securities laws and other regulations applicable in Chile, the United States of America and other relevant jurisdictions. This presentation contains statements that may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements appear throughout this presentation and include statements regarding the intent, belief or current expectations of Enel Américas and EGP Américas and their prospective management with respect to, and among other things, Enel Américas' and EGP Américas' business plans, including the proposed merger; trends affecting the Enel Américas's and EGP Américas's financial condition or results of operations, including market trends in the electricity sector in Argentina, Brazil, Colombia, Peru, Costa Rica, Guatemala and Panama; the impact of competition and regulation and electricity sector in Argentina, Brazil, Colombia, Peru, Costa Rica, Guatemala and Panama; political and economic conditions in the countries in which Enel Américas and EGP Américas and their affiliate operate; and other statements included in this presentation regarding matters that are not historical facts. Such forward-looking statements are not guarantee of future performance and involve certain risks and uncertainties. Actual results may differ materially from those provided in the forward-looking statements as a result of various risks and uncertainties, including those described in the Enel Américas annual report on Form 20-F filed with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates they were made. None of Enel Américas or EGP Américas or any affiliate undertakes any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise except as required by law. For all these looking -- forward-looking statements, Enel Américas claims the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. I would now like to turn the presentation over to Mr. Rafael de la Haza, Enel Américas' Head of Investor Relations. Please proceed.

Thank you, Victor. Good morning, ladies and gentlemen, [Foreign Language] I'm Rafael de la Haza, Head of Investor Relations of Enel Américas. In the spirit of transparency that is characterizing this process since the beginning, Maurizio Bezzeccheri, our CEO; and Aurelio Bustilho, our CFO, will be joining today's conference call with the purpose of providing more details and attend questions on the transaction announced on September 21. [indiscernible], as you already know, to merge EGP Américas' assets into Enel Américas. Following the presentation, we will have the usual Q&A session. And in line with what we have done recently, questions to the management to our CEO and our CFO, can be made only through the telephone line. Before we start, let me remind you that the media is listening to both the presentation and the Q&A session. Now I give the floor to our CEO, Maurizio Bezzeccheri, who will start by summarizing the contents of this presentation and its scope. Maurizio, the floor is yours.

Thank you, Rafael. In the following slides, we would like to start highlighting the main milestones that the company has achieved since 2016 when our reorganization process took place as well as the [indiscernible] of capital increase. Then we will give more details of the proposed transaction, which includes [indiscernible] of the [indiscernible] for the company products [indiscernible] we will briefly present the [indiscernible] of company [indiscernible] of the transaction [indiscernible] with our [indiscernible] the open for the usual questors and answers [indiscernible]. Let's move now to Page #4 [indiscernible] to our. prudent and robust [indiscernible] [Technical Difficulty]

Maurizio, sorry, this is Rafael. I think that the quality of your audio is not good. So please take the phone because we can't hear you correctly. Thank you.

Okay.

So let's start please in page number...

I will -- yes, yes.

Okay, thank you.

Okay. The integration of EGP Américas into Enel Américas perfectively fits with our view of the future company. A fully integrated vehicle prepared to be a natural leader in an energy transition scenario in Latin America, where renewable energy is a high priority. On Slide #5, a quick reminder of the proposed transaction. As you already know, the proposed transaction consists of the merger of EGP assets in Central America and South America, excluding Chile, EGP Américas into Enel Américas. Currently, Enel SpA has a 65% stake in Enel Américas and 100% of EGP Américas. The Board of Director of the company has proposed, in line with the evaluators and appraisers, an exchange ratio of 0.43 shares of Enel Américas for each share of EGP Américas or any other exchange ratio to be approved by the extraordinary shareholder meeting within the range of 0.41 and 0.45. The resulting ownership structure based on the mentioned exchange ratio of 0.43 would lead to a 75.5% stake of Enel SpA in Enel Américas and 24.5% stake of the other shareholders without considering any withdrawal rights being exercised. As a result of the transaction, Enel Américas will increase its exposure in hydro and mainly in nonconventional renewable assets across Latin America, especially in Brazil, Peru and Colombia. Turning to Slide 6, we would like to briefly present Enel Green Power. As you can note, it is a leading world player founded in 2018 and present in 5 continents, 28 countries with strong presence in Central and South America. Globally, it has circa 46 gigawatts of installed capacity and a mature pipeline of 51 gigawatts as of September 2020. Considering only the scope of the transaction, the expected 2023 EBITDA of EGP Americas would almost double respect 2020, impairing a CAGR of 24%. In terms of installed capacity, Enel -- EGP Americas has been experiencing an unparalleled growth from 2 gigawatts of operational capacity in 2017 reaching 3.7 gigawatts by year-end 2020 and expecting to reach 7.8 gigawatts of operational capacity in 2024, ensuring growth and benefiting from each unique advanced pipeline. Looking at the status of the platform to be integrated, EGP Americas presents 3.3 gigawatts already in operation, 2.2 gigawatts in execution and 2.4 gigawatts in an advanced development stage. With a well-balanced mix in terms of technology and with Brazil capturing a substantial portion of total capacity. Now let's have a look at the operational pro forma of the resulting company once the merger is completed. As you can note on this slide, the transaction will increase Enel Americas install capacity from the current 11.3 gigawatts to 14.6 gigawatt and expecting to reach 19.1 gigawatt in 2024, assuring company's future cash flow generation. In terms of geographies, representativeness of Brazil, Colombia and Peru, will increase from 61% to 66% in terms of install capacity in a pro forma basis as of September 2020. Moreover, it will increase the importance of renewable generation from 56% to 65%, reaching 73% in 2020 for -- aligned with our ESG strategy. Coming to Slide #8, we will see the leadership position that Enel Americas will represent in the region. The transaction will create a unique platform in Latin America, enhancing our [indiscernible] leadership position in the region, with 2.5 gigawatts of wind and solar and 7 gigawatts of total hydro installed capacity. In addition to the 2.2 gigawatt already in execution and 2.4 gigawatt advanced development stage projects, EGP Americas will contribute the largest pipeline of nonconventional renewable energies in LatAm, providing future cash flow and boosting our energy transition. From a geographical point of view, Enel Américas will expand its presence with the inclusion of Central America in our perimeter operation. Right now to reinforce the main points of the transaction rationale on the following slide. We believe there are 7 key components that drive the transaction. First, integration with the largest nonconventional renewable platform in LatAm with 3.3 gigawatts of capacity under operation, has 2.2 gigawatts in execution, 2.4 gigawatts in advanced development stage and 22.1 gigawatts in the pipeline as of September 2020; boost Enel Americas energy transition, increasing the representation of renewable sources from 56% to 73% on -- of the total generation capacity; unique growth opportunity, leveraging EGPs unparalleled scale and solid track record; stronger balance sheet with a clear room for additional leverage; greater operational and geographical diversification, limiting downside risks; clear opportunities to boost growth in the free market in Latin America benefiting from the combination of conventional and renewable generation sources at competitive prices. And finally, creation of a single and fully integrated development vehicles of renewable in LatAm. Let's now move to Slide #11 to give you more details on the proposed transaction. As previously mentioned, the independent evaluator scope included analysis of fair market condition and the contribution of the transaction to the corporate interest of the company. Santander was appointed by Enel Américas Board and Banchile by Enel Américas Independent Director Committee. In addition to that, Pablo D’Agliano was the appraiser appointed by Enel Américas and David Jana by EGP Américas, who's scope included the issuance of the valuation report of the companies being merged and the relevant share exchange ratio. According to the Chilean law, reports include a pro forma balance sheet of the surviving entity. All the advisers were provided with identical information for their analysis, including EGP Américas and the Enel Américas management presentations, accessed through a virtual data room, weekly question-and-answer session and video conferences with country CFOs and business development team. Let's now move to the next slide to give you more details on the independent evaluators and appraisers conclusion. According to the valuation that you can see on this slide, Enel Américas equity value ranged from USD 12.9 billion (sic) [ USD 12.9 million ] to USD 16.5 billion (sic) [ USD 16.5 million ], a significant premium to undisturbed value, while Enel -- EGP Américas equity value range from USD 5.7 billion (sic) [ USD 5.7 million ] to USD 7.0 billion (sic) [ USD 7.0 million ]. The average of the implied share price of Enel Américas is pretty aligned with the current market consensus of the company, CLP 151 per share as you can observe in the blue line of the chart. As a result of the valuation, midpoint for each independent evaluator and appraiser, Enel's past stake in Enel Américas ranged from 75.2% to 75.9%. We will see later more details on the exchange ratio proposed by the Board of Directors. Let's now have a look on the positive market reaction on Page #13. First, I would like to start by thanking the professionalism of the investment community towards the analysis of this transaction. The mentioned investment community has recognized the following. The process has been carried out with full transparency and with a maximum level of respect, to the applicable legal framework. The valuation of both companies obtained from the independent evaluators and appraisers analysis is fair for all the parties involved. This deal makes sense for -- from an economical and strategical point of view for Enel Américas and all its shareholders. And this has been confirmed from both research analysts and rating agencies. Since the announcement of this transaction, the management team of Enel Américas has duplicated its effort to explain to all the shareholders of the company that contacted us the rational benefit that we foresee if this transaction is approved. In the next coming weeks, we will continue with these efforts to ensure a full understanding of the proposed transaction. On Slide 14, we will present the exchange ratio proposed yesterday by the Board of Directors of the company. In line with the average submitted by evaluator, it has been provided an exchange ratio of 0.43 or any other exchange ratio to be approved by the extraordinary shareholder meeting in the range of 0.41 and 0.45. As mentioned before, the midpoint leads to a 75.5% stake of Enel's stake in Enel Américas and 24.5% stake of the other shareholders without considering any withdrawal rights exercise. According to our highest standard of governance and Chilean corporate law, the transaction is providing a fair treatment of all parties involved and have the unanimous approval from the Board of Directors and a positive outlook from the independent director committee. In order to keep the shareholder rights, dissenting minority shareholders can withdraw during the withdrawal rights period. We consider that the resulting capital structure of Enel Américas will continue being attractive to all our shareholders after the transaction. Before moving to the time line of the next step of the process, let me give you a very quick overview in terms of governance in Slide #15. You can note that Enel Américas will maintain the highest standards in governance among listed companies, being related-party transaction treated according to the Chilean Corporate Law on the top of -- among international standards. If approved, after the merger, Enel Américas will maintain the Board composition will continue to be integrated by 3 independent members in connection with the investment and financing policy of the company, the Board of Directors will continue acting according to the current framework. Company's corporate governance principle also include transparent information system for planning, supervision and coordination purposes as well as the creation of risk policies by Enel Américas to identify, quantify and mitigate any potential conflict of interest. Important to mention that 7 companies, parts of IPSA, excluding Enel Américas, are controlling shareholders with more than 2/3 ownership. On the following slide, you will see a detailed overview of the merger process. We have summarized in this slide the steps of the transaction that have been already completed and the coming milestones of the deal. Since the announcement of the transaction on September 21, the process strictly followed regulator's guidelines, including circa 45-day related party transaction process. Yesterday, the Board of Directors summoned an Extraordinary Shareholders Meeting to be held on December 18, and proposed the exchange ratio for this transaction. If the merger is approved, dissenting shareholders could exercise their withdrawal right in a 30-day period commencing on December 19. The price for withdrawal right exercise in Chilean pesos, CLP 109.79 per share, below the current stock price at Enel Américas at yesterday closing. The merger shall be subject to the satisfaction that the withdrawal rights that Enel Américas shareholders may exercise as a result of the merger should not exceed 10% of the outstanding shares with voting rights issued by the company. We expect the transaction be completed during second quarter 2021. Now I give the floor to our Aurelio, who will illustrate the change that this transaction will make on our equity story.

Thanks, Mauricio. Our equity story is truly unique in the Latin American region. It has been built over the course of the years as a result of the combination of organic growth and the operational excellence and a number of successful strategic transactions. We have been successful in implementing our consolidation strategy of the energy distribution sector in Latin America with the acquisition of one of a kind assets in the region. And our focus over the next decade will be to complement the advantage offered by our relevant customer base with the integration of nonconventional renewable energy while continue to expanding our energy solution to our end users. The merger of Enel Américas and EGP Américas accelerates our strategy and creates the appropriate condition for us to deliver growth and value creation to our shareholders by enhancing even further our equity story in a market with a potential growth in terms of electrification pushed by decarbonization, digitization and decentralization. The proposed transaction consolidates Enel Américas as the leading renewable energy player in the region, accelerates our energy transition process to a greener energy company, creates nonreplicable strategic competitive advantage in the renewable space, maintain our strong balance sheet position to continue exploring M&A opportunities in distribution and minorities lay out, and has our financial stability and cash flow predictability. Let's now look in depth in each point of the new invasive equity story. Today, we have a diversified portfolio in terms of geography and operations in 4 countries, with most of our results coming from our networks and traditional generation business. By merging in -- with EGP Américas, our diversification improved significantly by adding additional renewable energy in new locations throughout Latin America. The relevance of the nonconventional renewable energy segment, which would represent approximately 10% of our combined EBITDA today, is expected to increase significantly over the upcoming years. This is result of the superior growth profile contributed by EGP Américas. In addition, the addition of solar and wind power technology to our generation portfolio will also improve our services offering to a unique position. A higher profitability and competitive advantage will be reached by combining the largest customer base in the -- with the biggest renewable platform in the region. Geographically speaking, EGP Américas will enter countries where it has no operation today, which can represent opportunity for future business development, like, for example, future plans of interconnection Colombia and Panama system. I would like to underline that Panama, for example, is an investment-grade country with a dollarized market, which is also positive to our cash flow generation and effects variation protection. In short, the rebalancing of results between distribution and generation, geographic diversification and the cooperation of more competitive, renewable and clean energy into the Enel's current portfolio will lead the merger company to reduce business risk, hence increase its value by lowering the discount rate for future cash flows. Finally, I would like to underline that the integration proposed is very well aligned with our commitments on SDG goals. Let's now move to Slide #20 to give you more color on the growth expected from the pipeline. As explained in the previous slide, our power generation metrics today is solely based on traditional services, and we do not see it growing in terms of installed capacity. In the short, near term, and in the current strategic plan of Enel Américas, there was no growth contemplated under the traditional generation. On the other hand, while EGP Américas already has 3.3 gigawatts of installed capacity in operation, it is expected to more than double its capacity by 2024, reaching 7.9 gigawatts. Out of the total, 4.6 gigawatts growth in installed capacity by 2024, 2.2 gigawatts is already under construction, and the remaining 2.4 gigawatts is in a very advanced stage of development. This last part represents only a small part, approximately 10% of EGP Américas' total pipeline. This total pipeline is significant and totals more than 22 gigawatts, which we'll present in more detail in the following slides. If we were to consider only the asset in operation, the 11.3 plus the 3.3 and growth included in the business plan, Enel Américas installed capacity is expected to grow approximately 70% by 2024. On the following slide, #21, I'm going to give you more details on the mentioned pipeline. Here, we have a more detailed view of the total pipeline. The 2.4 gigawatts you see in the first column is what is considered in the EGP Américas business plan. While the other 3 columns shows a more detailed breakdown by geography, and at different stage of maturity of the 22 gigawatts pipeline, not included in the business plan 2024. As you can see, there is a relevant part of the total pipeline, totaling 7.6 gigawatts in the vast majority of the cases. The projects included in the major group have land secured, resource measured, available grid connection and environmental license. This combination of factors increased the profitability of such pipeline becoming operational in the near to medium term. There is more -- there is also more 14 gigawatts of pipeline in less advanced stages of development that could become operational further down the road. Let me now give you a quick overview on the market outlook for nonconventional renewable energy in the region in the next slide. Market outlook in the region is completely aligned with the strategy we are pursuing of making a big step in transitioning to renewable energy services. As previously mentioned, the merger will create one of the largest renewable platform in Latin America. According to public services, the installed capacity growth in the region for the next 30 years will come completely from green energy sources. It is expected by 2050, at least 53% of installed capacity in LatAm will be renewable sources, with that number potentially being as much as 67% in a more optimistic scenario. Along the same lines, governments of main markets have already expressed the transition to clean energy as one of the main objectives in the sector. Some of them already approved specific policies and tax incentives to incentivize and facilitate investment in renewable energy because it's cheaper, it's clean, it is sustainable. In the following slide, #23, some color on the track record of EGP and the competitive advantage to be obtained from this global leader. As we have highlighted throughout the presentation, the transaction represents a unique growth opportunity leveraging on EGP's unparalleled scale and solid track record in developing and implementing renewables projects. EGP Américas will not only have one of the largest renewables platform in Latin America through our portfolio, but also a platform with truly unique competitive advantages that come with the benefit of having access to EGP global organization. The sourcing scale allowing procurement advantage, driving lower CapEx delivery and ultimately enhancing cash flow generation. Being part of a global and flexible engineering and construction organization enables more efficient project management capabilities, and with this, more fast time to EBITDA. The global operation and maintenance platforms ensure operational excellence and efficiency. EGP has an unparalleled track record of new asset delivery and continuous pipeline replenishment in the recent years. EGP Américas will continue to benefit from such track record and to meet additional capacity delivering targets. Let's now move to Slide #24, which contains the analysis of the positive impacts of the integration in terms of leverage capacity. This transaction will be immediately leveraged neutral, and we expect that the leveraging effect as renewable capacity in construction comes online and put in operation. Our balance sheet will, therefore, remain well positioned to fund organic growth and will retain significant power to pursue any attractive strategic M&A or minority buyout in the future. The leverage ratio will remain well below 2.5x leverage threshold, that is always under control by Enel Américas. Maintaining a solid balance sheet and capital structure will bring multiple benefits to the company such as reaffirmation in the company's investment-grade ratings, the possibility to achieve even lower cost of debt due to more ESG-focused business, greater financial flexibility allowing the company to have access to multiple financing alternatives and M&A opportunities. Now on the following slide, Maurizio will conclude this presentation with the closing remarks.

Before opening for questions, please allow me to provide a few closing remarks on the proposed merger of EGP Américas platform. This envisioned transaction comes on the back of a successful expansion strategy led by the company since it's beginning in 2016. We have consistently created value for our shareholders delivering on our goals of becoming the largest private utility company in the region to leader the energy transition process. This transaction will deliver a stronger Enel Américas with a more diversified business and geographical presences to minimize risk and create value to all our shareholders. As we continue positioning ourselves for multiple growth opportunity ahead of us, including, but not limited to minority buyouts, consolidation and privatization opportunities. This capital increase will put us in a stronger condition to push such growth plan. Finally, the proposed merger will create a single and fully integrated development vehicles in LatAm. The floor is yours, Rafael.

Well, thank you, Maurizio, Aurelio. Thanks for your time and listening to the operation. I now pass the call to the operator for the Q&A session. Operator, please proceed.

[Operator Instructions] Our first question will come from the line of Juan Barrios from [ Segal Capital ].

Now so our question is regarding -- if you could please help us to understand what price assumptions were considered for the 2.2 gigawatt projects under execution as well as a 2.4 gigawatts in advanced development stage for EGP? And also, we would like to know how much of the 22.1 gigawatt pipeline was considered in the evaluation being done? If I'm right, those details were not publicly available in any of the reports that we have access to from both the appraisers and the independent evaluators. So those are the questions.

Okay. Regarding the methodology applied, the methodology is discount cash flow. I suppose the evaluator took in consideration a discount cash flow based on some percentage of success or some percentage of risk. The 2.2 gigawatt in construction are coming in operation in 2020, 2021 and 2022. In the reality, we have -- we spoke during this conference call of 3.3 gigawatts up today, but this 3.3 is expected to become 3.7 already at the end of this year. And then we'll continue and are right now under construction. They are opening already the construction location, et cetera. So we expect we will come into operation in 2022 -- and up to 2022. The 2.4 gigawatts are based on as -- already we told based on the EGP business plan. And the -- I suppose the evaluators, I just recalled that these are independent evaluators. They, of course, for sure, based on their experience or pipeline thing -- track record. And they think -- they -- on consideration, they have evaluated this additional 2.5 -- 2.4 gigawatts of projects in advanced stage of development that have showed already, Aurelio, our project with all permit already in their own end. I just recall that Santander in Chile, they have a quite huge track record in terms of valuation of such kind of a deal. And finally, the 22 gigawatts, there are different valuations by the 2 independent evaluators and the 2 appraisers based on their own experience. Usually, this is common practice in the market that you will, for example, attribute success rate based on the permitting and then you discount this total amount of 22 gigawatt to defined amount of the -- of megawatt, final megawatt, and then you apply this cash flow. The independent evaluator -- and this had been our constant attention as border without limiting their independent evaluation is it has been just to evaluate that -- to control that this valuation are based on the common standard in the market.

Okay. But the prices are not disclosed, right? For the [indiscernible]?

Sorry?

But the prices are not going to be disclosed for the report? Because something with you now...

This is true.

I can answer to this point. I can answer this point that price, Juan Pablo -- sorry, Juan Pablo, the price is of this energy in the future is between $20 to $30, okay, per megawatt hour.

Our next question will come from the line of Charles Fishman from Morningstar.

Do you anticipate any change in the dividend policy post transaction?

No. But in the reality, we will continue with our policy -- dividend policy, but Aurelio, please go ahead.

Thank you, Maurizio. Charles, yes, you're right. We are not estimating no changes in the dividend policy since the company is very well balanced in terms of financial position.

Okay. So 50% payout is what we should expect?

50%, Yes. 50% payout.

The next question will come from the line now of Sara Piccinini from Mediobanca.

I have 4. So the first question is on the revenues profile of Enel Americas. Could you please share how much are the revenues covered by PPAs of the existing assets and also the secured pipeline? If there is any hedging strategy or how much is exposed to merchant? So any indication on this? And also, a clarification maybe, is the pipeline increased versus what you have announced in September? Because I remember a number more in the region of a 12, 13 gigawatts, and now we are looking at a much higher number of around 22 gigawatt additional. So if you can specify on that. Then the second question is on the net debt to EBITDA. If I understand correctly, you say that you will maintain a net debt-to-EBITDA ratio below the 12.5 -- sorry, 2.5x. Does this mean that this is your net debt-to-EBITDA threshold while you are delivering on the pipeline? And if you see any M&A opportunity, would you go above this 2.5x? And then the last 2 questions on the transaction details. So there was a limit in your bylaw saying that you had a 65% limit of the voting rights and that should be removed in order to allow Enel to go above the 75% you are showing now. So has this been limit been removed? So that you can foresee Enel group to have 75% stake in your share capital? And finally, could you please repeat, again, the condition at which it's -- subject the approval in terms of withdrawal rights?

Okay. I will take the first and the second. I will just make some reservation on the fourth and fifth. Regarding merchant exposure in general, it's not policy of Enel going merchant for the plant, even more if you are talking on renewable assets. In general -- or you have a PPA based on public auction for distribution company or you have a PPA of 10, 15 years with free customers that usually are a big industrial customer, considering the prioritization, the -- some of the attendance of free market in Latin America, mostly in Brazil. Regarding the second question, how it was possible, 12 up to 22 gigawatt. Just to recall that the number of 12 was based on public information available in the press. And for this reason, we explain all the times, this -- been the basis for the 12 gigawatt. The 22 gigawatt comes from the analysis of data room of the 4, 2 independent evaluators and 2 appraisers that were in that room. So the 22 gigawatt comes from the analysis of documentation in data room. Regarding the 65% to 75%, 65% limits, et cetera. No, it's not removed. In the reality, this transaction will be done only if will be removed this 65% because I just recall, this is a merger, a capital increase that would be subscribed by Enel SpA in terms of assets. Regarding the withdrawal right, the Board of Directors fixed at 10% of the outstanding share withdrawal rights possible. And the shareholders will vote against the transaction we'll have in 30 days after shareholder meeting. The possibility to have -- to withdraw the price defined bylaw comes out from the calculation of almost CLP 110. And as we underlined during the presentation, this CLP 110 almost are below the value of the shares at the closing of yesterday. Regarding net debt EBITDA, I will let Aurelio reply.

Thanks, Sara, for the question. Yes, we maintained this limit of 2.5x net debt to EBITDA because it wins us an investment grade in the company. And this -- the interesting side of this transaction -- this proposed transaction is that we position ourselves in the renewables without touching this, let's say, the power space to keep on getting opportunities in the region in distribution, M&A transactions in minorities buyout. Analytics business like electromobility, we are investing also in smart life. And so this it's very interesting, the positioning that we have, that we maintain the strategy to position as the biggest client base or customer base or in the user base,with the biggest renewable basis without touching the -- our fire power in order to keep on growing and taking advantage of new opportunities. And again, introducing new geography, which is something that would be very interesting in its products.

Sorry, just I have last one. Is the approval of the 65% threshold to be voted on 18 December on the extraordinary shareholders meeting?

Si, Si. In the -- let's say, the dynamic of the extraordinary shareholder meeting will be an approved -- an approval of the transaction, subject to the fact that we remove the 65% limit. The tests of these issues are in the -- as well in the [indiscernible] that has been sent yesterday to the commission Mercato Telematico Azionario and as well by the press release that we issued yesterday night.

Our next question next question comes a line of Lueder Schumacher from SG.

Yes. Lueder Schuma here, SocGen. A couple of questions for me. The first one is on the cap. You said the 65% cap has to be removed for the transaction to go ahead. Will there be a new cap at 75.5%? Or could Enel if they choose to do so in the future increase the stake further? That's the first question. The second one is really on the process by [indiscernible] percent of [indiscernible]

Sorry? We lost the second question.

Vote against the compensation CLP 110. But what is more than a -- the second question is on the [indiscernible] do not expect the terms of the transaction, they can accept the CLP 110. But what happens if it's more than 10%, which do not accept the terms. And the third question is, I was quite intrigued on the payout ratio, the question you answered earlier. So are you expecting cash flow to be strongly enough to finance the quite ambitious growth ambitions in renewables and also your traditional core business and keep the payout ratio at 50%? Or is leveraging up the balance sheet part of the consideration as well.

I will reply, even though, I catch only part of your second question, and then I will let Aurelio to integrate. Regarding the fact that we removed the 65% following the Chilean law, you cannot put another threshold. So the possibility for Enel to continue to grow in the company exist. Second, if the withdrawal right will exceed the 10%, I think the transaction will not pass, but I will let -- and I will let now our General Counsel, just to be more precise in this aspect. And the third question in general, and this is, I think, the story that is the market story of Enel Green Power. Enel Green Power has always been able just to generate enough cash flow to allow the majority of its growth. As a consequence, the payout ratio for our dividend for sure will be not affected by the growth in renewable energy. Aurelio, I don't know if Domingo can elaborate a little bit more regarding the exceeding of 10% of withdrawal right? And Aurelio regarding the dividend payout, please?

Thank you, Maurizio. Good morning to everyone. This is Domingo Valdés, General Counsel. Regarding the question of the 10%, we should consider that according to the call done by the Board, the extraordinary shareholders meeting, which will take place on December 18, we'll have to decide regarding certain conditions that are associated to this merger. And particularly amongst those conditions, it is least 10%. So if by any reason, shareholders who are dissenting and would like to exercise the withdrawal rights exceed 10%, then the merger is going to be considered or deemed to fail.