Chinese Companies Look at M&A in Latin America

Chinese companies struggled to go after acquisitions abroad in 2020; however, Latin America now appears to be a region where they were able to successful do deals.

Overseas acquisitions by Chinese firms look to be in a fourth consecutive yearly decline, with a $31.1 billion tally that’s the lowest since 2007, according to data compiled by Bloomberg. Transactions targeting Latin America totaled $7.7 billion — more than Europe and North America combined.

Chinese companies seeking acquisitions have experienced greater oversight in Europe and the United States in 2020. The coronavirus pandemic saw their strategic industries much more vulnerable for hostile takeovers, which added to national security concerns. Buyers from Asia’s largest economy then concentrated on Latin America. That region has had years of political and social uncertainty which has made other foreign firms to abandon the area.

“That’s opened a once-in-a-lifetime window of opportunity for long-term strategic investors from China,” said Alfredo Arahuetes, an international economics professor at Madrid’s Comillas Pontifical University told Bloomberg. “Chinese buyers are finding good assets at pretty good prices. And this trend will likely continue over the coming years.”

Chinese Chile
Chinese Chile
Chile

In November, China’s State Grid Corporation agreed to acquire control of a power network company in Chile. Observers value the transaction target at $5.2 billion including debt. The deal was the year’s biggest Chinese outbound acquisition. State Grid also completed the purchase of Sempra Energy’s assets in Chile earlier this year.

China’s State Power Investment Corporation purchased Mexico’s largest independent renewable energy company, Zuma Energia. Zuma was bought via its Hong Kong-based unit, China Power International Holding Limited. That company will now focus on creating “a regional sustainable development platform,” according to a company statement. Zuma is estimated to be the largest renewable energy company in Mexico. The company has a total installed capacity of 818 MW. The company was started with the financial backing of Actis and Mesoamerica in 2014.

Chinese Peru
Chinese Peru
Peru

Another government-owned energy titan, China Three Gorges Corporation likewise acquired Sempra’s businesses in Peru for roughly $3.6 billion. Its subsidiary, China Yangtze Power Co., acquired an 83.6% stake in the power distribution company Luz del Sur. The deal includes Luz del Sur, Tecsur (electric construction and infrastructure services), and Inland Energy (Luz del Sur’s generation business). Luz del Sur (LDS) is the biggest listed power company in Peru.

Chinese buyers have the resources to invest in sizable Latin American targets that need large amounts of capital expenditure, according to the director of Asia Pacific at Banco Santander SA. He note that Chinese companies view M&A in Latin America as merely the start of a much bigger process. The objective, this director said, is to invest in those assets and boost the long-term value for all stakeholders.

In Europe, Chinese companies announced just $3.5 billion worth of acquisitions in 2020. That’s a 71% decrease from 2019, according to research by Bloomberg. Chinese buyers found Spain and Portugal as the two few markets that still welcome their investments. In August, China Three Gorges Europe acquired 13 Spanish solar park assets owned by X-Elio Energy SL. This move will expand the company’s footprint in Europe. They also have investments in Portugal, Germany, the UK, and Greece. The power plants acquired by CTGE are new developments constructed between 2019 and 2020.

China Three Gorges Europe is part of CTG Group — the largest clean energy group in China and the largest hydropower enterprise in the world

Nonetheless, Chinese companies must address geopolitical tensions overseas, along with pressure from Beijing to lower their sights as to acquisitions. In fact, the Chinese government have scrutinized some deals over concerns about capital outflows and excessive corporate debt loads. To that end, the volume of China’s outbound acquisitions in 202 is significantly less that its peak in 2016, when China National Chemical Corp. agreed to buy Swiss agrochemical maker Syngenta AG for $43 billion. And conglomerates like HNA Group Co. and Anbang Insurance Group were among those that were forced to unwind their portfolios under government supervision, after paying big money for a range of purchases from ultra-luxury properties to shareholdings in firms such as Deutsche Bank AG.

“Chinese investors have now become very savvy acquirers,” said Arahuetes said in the report. “They no longer buy assets that make no strategic sense at crazy high multiples. They’re now focused on building their international footprint in certain markets including Latin America and Spain, and in key industries such as energy and infrastructure.”

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.