In a difficult year for Chinese companies seeking acquisitions abroad, Latin America emerged as a region where it was possible to bring together some companies.
Overseas acquisitions by Chinese companies are set to post their fourth consecutive annual decline, totaling $ 31.1 billion, the lowest amount since 2007, according to data compiled by Bloomberg. Transactions in Latin America totaled $ 7.7 billion, more than Europe and North America combined.
Chinese buyers have faced increased scrutiny this year in Europe and the United States, where the pandemic left their strategic industries vulnerable to hostile takeovers, adding to national security concerns. In this context, Chinese companies focused their attention on Latin America, where years of political and social uncertainty have led other foreign companies to withdraw.
So far in 2020, deals worth just over $ 1 trillion have been announced, making this the slowest first half since 2012.
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“That opened a window of once-in-a-lifetime opportunities for China’s long-term strategic investors,” he said. Alfredo Arahuetes, professor of international economics at the Comillas Pontifical University of Madrid. “Chinese buyers are finding good assets at fairly convenient prices. And this trend is likely to continue for years to come.”
Last month, Chinese power company State Grid Corp. reached a agreement to acquire control of an electricity grid company in Chile. The operation valued at 4.3 billion euros (US $ 5.2 billion), including debt, was the largest Chinese acquisition of a foreign company of the year. State Grid also completed the purchase of the assets of Sempra Energy in Chile earlier this year.
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The North American firm’s Chilean businesses include Chilquinta Energía and Tecnored. The agreement between Sempra and State Grid would reach US $ 3 billion.
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In Mexico, the state-owned China Power Investment Corp. I buy the largest independent renewable energy company in the country, Zuma Energía. Another state-owned energy giant, China Three Gorges Corp., had previously acquired Sempra’s operations in Peru for nearly $ 3.6 billion.
Chinese companies have the firepower to invest in major Latin American companies that require large amounts of capital spending, according to Antony Hung, responsible for the Asia-Pacific region of Banco Santander SA.
“Chinese companies see mergers and acquisitions in Latin America as the beginning of a much bigger process,” Hung said. “The real end game is investing in those assets and increasing the value for all stakeholders in the long term.”
In Europe, Chinese buyers only announced acquisitions worth $ 3.5 billion this year, a 71% drop from the previous year, according to data compiled by Bloomberg. Spain and Portugal have been one of the few markets that still accept your investments. Three Gorges bought 13 assets in Spanish solar parks owned by X-Elio Energy SL in August.
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The conflict between the two powers has escalated to another level this week. The United States announced the closure of the Chinese consulate in Houston and in retaliation China took the same action with the American consulate in Chengdu.
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“The prospects for China’s foreign deals in Spain, Portugal and Latin America remain positive for 2021 and beyond,” said Megan Peng, director of corporate finance in Asia at Banco Bilbao Vizcaya Argentaria SA. “There are still interesting companies available, including some great trophy assets.”
Chinese companies battling geopolitical tensions abroad also feel pressure from Beijing to reduce their ambitions. Government authorities have cracked down on certain types of deals due to concerns about capital outflows and excessive corporate debt burdens.
In fact, the volume of Chinese acquisitions of foreign companies this year is far from the peak reached in 2016, when China National Chemical Corp. agreed to buy Swiss agrochemical maker Syngenta AG for $ 43 billion. Conglomerates like HNA Group Co. and Anbang Insurance Group Co. were among the companies that ended up deploying their portfolios under government supervision, after paying high prices for all kinds of assets, from luxury properties to stakes in companies like Deutsche Bank. AG.
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The lawyer Roberto Guerrero, a partner at Guerrero Olivos, explains the reasons for the expected low activity. But it also sheds light on a potential recovery.
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“Chinese investors have become very smart buyers,” said Arahuetes of the Universidad Pontificia de Comillas. “They no longer buy assets that do not make strategic sense at very high multiples. Now they are focused on building their international presence in certain markets, such as Latin America and Spain, and in key industries such as energy and infrastructure.”
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