Sale of Edenor February 17, 2021 Disclaimer
This presentation has been prepared by Pampa Energía S.A. (“Pampa” or the “Company”) in order to be shared with its shareholders to facilitate their deliberation of the proposed sale by Pampa of all of the issued and outstanding Class A common shares issued by Empresa Distribuidora y Comercializadora Norte S.A. (“Edenor”), representing 51% of Edenor’s capital stock and voting rights (the “Transaction”). This presentation does not in any manner address the Company’s shareholders’ underlying business decision to proceed with or effect the Transaction or the likelihood of consummation of the Transaction, nor constitutes a recommendation to Pampa’s shareholders (including, but not limited to, as to whether any such shareholder should vote in favor of the consummation of the Transaction). Further, it does not address the relative merits of the Transaction as compared to any other transactions or business strategies in which Pampa might engage, or the relative merits of the Transaction as compared to any strategic alternatives that may be available to Pampa; nor does it address any legal, regulatory, tax or accounting matters.
In preparing this presentation, we reviewed and analyzed: (1) the stock purchase agreement relating to the Transaction; (2) the behavior of the electricity market in Argentina and its regulatory framework; (3) information about Edenor, including updated financial and operating information with respect to its business, operations and prospects; (4) a trading history of Edenor ADRs and Class B common shares stock from January 2020 to January 2021; and (5) a comparison of the historical financial results and present financial condition of Edenor.
This presentation is not, and should not be construed to be, a fairness opinion, an expert’s report or a valuation opinion under the requirements of any applicable laws.
This presentation contains information and statements that are forward-looking within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that are not historical facts, and include, without limitation, all financial projections of Edenor outlined in this presentation. These statements are only predictions based on our current assumptions, expectations and projections about future events. Forward-looking statements may be identified by the words 'believe', 'expect', 'anticipate', 'target', or similar expressions. While Pampa’s management believes that the expectations reflected in such forward-looking statements are reasonable, investors (including its shareholders) are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and are generally beyond the control of Pampa, which could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include, but are not limited to, changing business, economic, financial, regulatory, political or other market conditions in Argentina and elsewhere, the completion of Edenor’s tariff revision process, Edenor’s prospects for growth anticipated by our management, and the other risks and uncertainties discussed in our reports and other documents filed with the U.S. Securities and Exchange Commission. Further, Pampa undertakes no obligation to publicly update Edenor’s nor its forward-looking statements, whether as a result of new information, future events, or otherwise, nor makes any representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein is, or shall be relied upon as a promise or representation that any such forward looking statements will be achieved. Management is not making and you should not infer any representation about the likely existence of any particular future set of facts or circumstances.
This presentation does not constitute an offer, or invitation, or solicitation of an offer, to subscribe for or purchase any securities. Neither this presentation nor anything contained herein shall form the basis of any contract or commitment whatsoever. Securities may not be offered or sold in the United States unless they are registered or exempt from registration under the Securities Act. Any offering of securities to be made in the United States will be made by means of a prospectus or offering prepared in connection with any such offering.
2 Table of Contents
1. Introduction 2. Electricity Market Overview 3. Company Overview 4. Market Capitalization 5. Conclusions Introduction Transaction snapshot
Brief summary of the transaction EBITDA, US$ million
51% of Edenor at US$ 99.1 million 11% 19% 18% 10% n.a. 21% premium to market (1) 212 (2) US$ 23m net financial debt forecasted as of Dec-20 161 115 US$ 70m CAPEX commitment from 2019’s settlement of 61 Cammesa regulatory debt
Implicit equity 194 % Edenor / Pampa Consolidated EBITDA F-20 net debt 23 (68) (2) (2) Capex committed 70 2017 2018 2019 F-2020 F-2021 EV 287 Disbursed investments, US$ million F-20 EBITDA (2) 61 Cumulative total: US$ 2.6 EV / F-20 EBITDA 4.7x billion 272 271 250 Use of proceeds: enhance power and gas business, 221 199 210 179 specially Plan Gas 183
135 Timeline: 120 110 106 108 99 105 • Shareholders’ meeting 2/17 + Regulator approval 70 → closing and change of control
• 1 year form closing: seller financing of 40% of 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 F- F- 2020 2021 purchase price @10% interest rate
Pampa will remain with a minority stake of 4.1%
Source: Bloomberg, Edenor ´s financial statements and approved 2021 budget - FX convertion at average official exchange rate of each period. (1) As of January 20 th , 2020 – (2) According to Edenor’s 2021 approved budget 4 Introduction Transaction summary
On December 28 th , 2020, Pampa Energía S.A. (“Pampa”) announced it entered into an agreement (the “Stock Purchase Agreement”) with Empresa de Energía del Cono Sur S.A. (the “Buyer”) and Integra Capital S.A., Messrs. Daniel Eduardo Vila, Mauricio Filiberti and José Luis Manzano (the “Guarantors”), to sell the controlling interest in Empresa Distribuidora y Comercializadora Norte S.A. (“Edenor”) by transferring the total Class A shares, which represents 51% of the capital stock and voting rights of said company, pursuant to certain precedent conditions, including but not limited to the approvals of Pampa’s shareholder meeting and the Argentine National Electricity Regulatory Entity (the “Transaction”).
The purchase price consists of (i) 21,876,856 Class B shares of Edenor, representing 2.41% of the capital stock and voting rights of Edenor (the “Price in Kind”); and (ii) US$95 million (the “Price in Cash” and together with the Price in Kind, the “Purchase Price”).
The Purchase Price shall be paid in three installments as follows: (i) US$5 million and 21,876,856 Class B shares of Edenor within the seven business days as from the signing date of the Stock Purchase Agreement, which have already been collected; (ii) US$50 million on the Closing date, subject to precedent conditions completion; and (iii) US$40 million after one year from the Closing date, except if offsetting or prepayment in advance occurs (the ‘Balance of the Price’). The Balance of the Price will accrue a nominal annual fixed interest rate of 10% as from the Closing date, payable on a quarterly basis.
To enable this sale, it will be necessary to submit the terms of the transaction to the consideration of Pampa’s Shareholders at a general shareholders meeting. In such context, we provide them with this presentation of general background information of Edenor as well as some economic and financial statements and information that we believe are relevant to make a decision.
5 Table of Contents
1. Introduction 2. Electricity Market Overview 3. Company Overview 4. Market Capitalization 5. Conclusions Electricity Market Overview Electricity value chain
Renewable
Nuclear 6% Large Residential 6% 105.321 Users GWh distributed in 2019 28%
43% 27% 61% 28 1 Significant players High Voltage Thermal Transmission Hydroelectric 6 29% Regional Market Transmission Ranking Company Share SMEs Installed Capacity 2 International 1 20% ~42 GW Transmission Total demand 2019: 2 16% Generation Transmission ~128,900 GWh 3 11% Demand
Distribution
Source: CAMMESA and Secretariat of Energy 6 Electricity Market Overview Sector snapshot
Sector overview
• Argentina is the 3rd most relevant market in the region, behind only Brazil and Mexico, with a current installed capacity of ~42 GW
• The system is predominately thermal based, representing almost 62% of energy matrix, but it is one of the most promising markets for renewable energies in LatAm
• For several years the sector was characterized by the lack of a regulatory framework and stable tariffs that guaranteed its reliability
• In order to increase electricity generation, the Argentine government has called for several international public tender processes for the purpose of executing long-term and US$ denominated Power Purchase Agreements (“PPAs”). However, some of the PPAs were not successfully completed
• By 2025, and according to current legal targets, at least 20% of argentine electricity demand should be generated by renewable sources
Electricity market structure Key regulatory entities
Generation System Op . Transmission Distribution Consumption
AES, Central Puerto, Enel, Pampa High voltage Energía, Albanesi, YPF Luz Transener EDENOR, Secretariat of Energy National Electric EDESUR, EDELAP, (“SE”) Power Agency among others Designs and implements (“ENRE”) System energy policy Oversees market operator: functioning and national ENARSA CAMMESA System regulated concessions regulator: ENRE Mid-voltage
Litsa, Transnoa, Provincial Transnea, companies Transpa, and +50 others Transba, cooperatives Distrocuyo & CAMMESA Transcomahue Wholesale grid administrator, dispatches energy into the National Interconnection System.
Majority state-owned Majority private Mixed ownership
Source: CAMMESA and Secretariat of Energy 8 Electricity Market Overview Electricity distribution
Distribution companies by province Electricity demand by WEM agent
14% 3% 1% Distribution companies
Large users
Small users
Autogenerators and others 82%
Market description
• Regulated activity with US$ tariffs prior to 2002. From then until 2017, tariffs were frozen in ARS and only minor tariff increases and large subsidies were granted to offset increasing costs • In 2017 a Comprehensive Tariff Revision established new tariff schemes for some distribution and transmission companies seeking to provide
11 Cooperatives reasonable return on assets: ARS tariffs with semiannual adjustments mainly based on local inflation path and a review every five years, along with an agreed capex plan to be implemented over the same 5-year period, but the adjustment was granted only 2 semesters • Since 2019, tariff increases were halted due to economic crisis and later because of the COVID-19 context • Concessions are granted for long periods (usually 95 years plus 10 optional years) DPTF • Each distributor supplies electricity in a specified geographic area pursuant to a concession • The sector experienced significant financial stress, particularly EDENOR and EDESUR, which did not have any tariff revision from 2002 until 2017 Source: CAMMESA Annual Report 2019 and Edenor’s filings 9 Electricity Market Overview Electricity demand outlook
Energy demand growth & GDP growth
• From 2003 till 2015, domestic 15% Demand CAGR: 3.3% demand for natural gas and GDP CAGR: 2.4% 6% electricity increased substantially, 10% 8% 6% 6% 6% 6% 7% 7% 6% 5% mainly due to end user tariff 5% 5% 3% 4% 4% 4% 5% subsidies 5% 3% 3% 0% -1% 1% 1% 0% • Recent slumps in the economic -2% -3% activity have affected the energy 0% 6% 6% 8% 4% -1% 9% 9% 9% 9% 9% 7% 9% 9% 2% 1% 1% 3% 3% demand from industrial -1% -3% -2% -3% -2% consumers, partially offset by -5% -3% -4% residential consumers • Tariff freeze over the last years -10% and high uncertainty could -11% slowdown the pace of investment -15% and thus require to rely more on 2011 1997 1995 1996 1998 1999 1994 2012 2013 2016 2017 2018 2014 2015 2019 2001 2010 2002 2003 2006 2007 2008 2004 2005 2009 thermal energy and imports 2000 GDP growth (%) Demand growth (%)
Energy demand breakdown by type of consumer Peak demand (GW)
Large users…
25 26 26 26 24 24 22 22 23 22 Residential 47% ~121.4 TWh
Commercial 27%
2011 2012 2013 2014 2015 2016 2017 2018 2019 as of November 2020
Source: CAMMESA Annual Report 2019 and Edenor’s filings 10 Table of Contents
1. Introduction 2. Electricity Market Overview 3. Company Overview 4. Market Capitalization 5. Conclusions Company Overview Snapshot of Edenor Overview Edenor distribution territory Largest energy distributor in Argentina and one of the largest in Latin America in terms of number of users and electricity sold Edenor holds a concession to distribute electricity on an exclusive basis to the northwestern part of the greater Buenos Aires metropolitan area and in the northern part of the City of Buenos Aires The concession was granted for 95 years, with a remaining life of 66 years and may be extended for and additional 10 years ENRE is the regulatory authority in charge of controlling and regulating the distributing service Since 2007, the company has been under the control of Pampa The company is listed in both NYSE and Buenos Aires Stock Exchange
9 million 95 years Individuals Shareholders’ structure (3) until 2087 + 3.1 million ~4,800 Float (4) 15.1% ANSES (2) 27.8% Clients Employees
52.8% 4.3% ~360,000 ~20.173 Class A Class B Commercial users TWh sold (4)
4,637 kmC 19.7% Concession area Market Share (4)
Source: The Company – (1) LTM September 2020 – (2) Argentina Pension Reserve Fund – (3) As of December 2020, net of shares at treasury– (4) It includes 0,2% of the Employees Stock Ownership Program (PPP) 12 Company Overview History and tariff overview
Delay in tariff adjustments Tariff adjustments Tariff freeze
Lower quality service Quality service improvement Quality service mantained
Breach of agreements and Ad-hoc regulations Regulatory framework compliance Halted framework compliance
Partial payments to CAMMESA Reduction of payables with CAMMESA Partial payments to CAMMESA
2002 2007 2016 2017 2018 2019 2020 2021
Public Tariff First RTI Acquisition by CPD adjustment Emergency Increase Pampa only for 2 • Health Emergency Law semesters declared and mandatory isolation • Tariff freeze extension (Dec – 20) • Discontinuation of CIADI arbitration • Tariff freeze • Social Solidarity and Prod. since February Reactivation Law
Since the acquisition of Edenor 13 years ago, Pampa hasn’t collected any dividends and during 11 years the regulatory framework hasn´t been complied
Source: ENRE Resol. No 63/2017 and Edenor 13 Company Overview Financial situation
Revenues, US$ million EBITDA, US$ million
1.618 108MM if we exclude the 1.529 agreement in regularization 1.470 212 of obligations 161 1.085 115 699 61
(68) 2017 2018 2019 F-2020 F-2021 2017 2018 2019 F-2020 F-2021
Capex, US$ million Cash flow – excl. extraordinary commercial payables, US$ m
24 271 250 221 179 -83 -96 135
-184
-270 2017 2018 2019 F-2020 F-2021 2017 2018 2019 F-2020 F-2021
Source: Edenor ´s financial statements and approved 2021 budget - FX convertion at average official exchange rate of each period 14 Table of Contents
1. Introduction 2. Electricity Market Overview 3. Company Overview 4. Market Capitalization 5. Conclusions Market Capitalization Edenor´s ADR price evolution Edenor’ ADRs are listed in the NYSE under the symbol “EDN,” and its Class B common shares are listed on the Buenos Aires Stock Exchange under the same symbol. Each ADR represents 20 Class B common shares
70 1400000 Volume traded Last price Transaction's ADR implied price Market cap Price eop. Transaction eop (MM (US$) Premium US$) 60 1200000 2019 6.26 274 -29% 2020 4.24 186 4% 50 20/01/21 3.66 160 21% 1000000 L3M 3.03 133 46% L6M 4.06 178 9% 40 800000
30 600000
20 400000
10 200000
0 0
Source: Bloomberg and Edenor’s approved 2021 budget 16 Table of Contents
1. Introduction 2. Electricity Market Overview 3. Company Overview 4. Market Capitalization 5. Conclusions Conclusions Key takeaways to consider when analyzing the Transaction
The agreed purchase price consists of (i) 21,876,856 Class B shares of Edenor (2.41% of the capital stock and voting rights of Edenor) which at current Edenor market price of the ADRs (20:1) represents approximately US$ 4.1 MM; and (ii) US$95 million. Consequently, the purchase price would be approximately US$ 99.1 MM
High level of uncertainty in terms of tariff scheme to elaborate projections
However, when analyzing the market capitalization of Edenor, we see that the transaction involves a 9% premium over its L6M market capitalization, a 46% premium over its L3M market capitalization and a 21% premium over its current market capitalization (1)
Additionally, the transaction would be made at a 4.7x the F-2020 EBITDA of Edenor
It should also be taken into consideration that:
No dividends have been collected since acquisition in 2007
The last tariff update was in February 2019, which translates in a delayed increase as of today of c. 68%: Negative impact of c. US$ 323m for Edenor’s revenues
The risk of the current tariff freeze being extended more than expected, could have a higher negative impact on Edenor’s projected financials and broaden the aforementioned premiums when comparing to market capitalization.
Given the tariff freeze, Edenor budgets a negative -US$ 68m EBITDA for 2021 which would negatively impact Pampa’s 2021 EBITDA
Edenor currently presents minimum synergies with Pampa
Source: Bloomberg and Edenor’s approved 2021 budget - (1) As of January 20 th , 2021 18 Conclusions Use of proceeds The sale of Edenor will allow Pampa to focus on the expansion of its power generation capacity as well as on its gas exploration and production resources, with special emphasis on the development of its unconventional reserves
“Plan Gas” production increase: Pampa was awarded with a 4 year GSA with a base volume of 4.9 million m3/ day and an additional volume in the winter period of 1 million m3/ day of gas. To achieve this production, Pampa will need to invest US$ 250m over the next 4 years, of which it is estimated that more than US$ 150m will be made during 2021
O&G consolidation opportunities: In a market that is increasingly being consolidated amongst fewer players, Pampa will analyze business opportunities and/ or acquisitions that are aligned with the company's strategy and provide synergies with our 13 production blocks were we hold interest in
Expansion of CTEB: The expansion of CTEB's generation capacity by 280MW is a critical project for the Argentine generation system. The work would require an investment of c. US$ 200m, of which US$ 133m are projected to be invested in 2021, to start operating in Q1 2022
Generation consolidation opportunities : Pampa continues to analyze constantly business opportunities and/ or acquisitions that would increase its market share and consolidate it as the leader of the segment
18