LatinFinance - September/October 2015 - 60

CHINA
FDI

Recent acquisitions suggest that China is broadening its ambitions in Latin
America. Buyers are making larger direct purchases and looking at a wider
range of assets. By Tom Nelthorpe

Taking a stake

f the prospect of lower Chinese demand for raw materials is making commodities traders nervous, the sentiment has not trickled down to Chinese buyers of producing assets in
Latin America.
A consortium comprised of China Minmetals-controlled MMG, Guojxin International and
CITIC Metal agreed the $5.85 billion purchase of Glencore's Las Bambas copper mine in Peru
in April 2014 while China National Petroleum Corporation (CNPC) closed its $2.6 billion acquisition of Petrobras' Peruvian operations in the same year. More recently, China Molybdenum
narrowly missed out in the closely-watched bidding for Barrick Gold's Zaldívar copper mine,
also in Peru.
At the time of announcement, the Las Bambas acquisition looked like one of the largest
outbound Chinese acquisitions ever, but it grew further. The buyers had promised to compensate Glencore for capital expenditure at the mine since the start of 2014, bringing the deal to
$7.005 billion.
The MMG-led consortium was rumored to have faced stiff competition for the asset from
Chinese state-backed aluminum producer Chinalco. The Chinese commerce ministry had
made the sale of the mine a condition of agreeing to the merger of Glencore and Xstrata,
leading most market observers to surmise that Glencore would favor a Chinese buyer. But as
the sale process dragged out from its June 2013 start, Glencore's insistence on realizing a rich
valuation for a prized copper asset did not waver.
The Las Bambas transaction on its own accounted for around 14% of the $50 billion in
outbound Chinese mergers and acquisitions activity that Deloitte estimated took place in 2014.
MMG already controlled the Galeno copper project nearby and the deal built on an existing
Chinese presence in Latin America that is spreading beyond natural resources.
"There has been a shift in Chinese interest in the region away from acquiring commodities
to meet supply requirements," says Eduardo Centola, managing partner and head of investment banking at Banco Modal in São Paulo.
Until recently, Chinese involvement in Latin America had much in common with its approach
in Africa, where the country's lenders, including China Development Bank and the Export-Import Bank of China, would make loans to host governments in support of domestic contractors.
But as the Peruvian examples show, the utility of the African model in Latin America is
limited. In countries with more mature natural resource sectors that can privately finance
infrastructure, Chinese contractors have had to take a more subtle approach.
"I'm not sure that Chinese developers have come to the region to compete with local
contractors," says Alberto Pandolfi, head of investment banking coverage and M&A for Latin
America at Citigroup. "But there are opportunities all over Latin America in infrastructure.
What will hold the region back during the next upturn is infrastructure investment."
Changing tack
China's ambitions globally have grown to encompass the acquisition of equity stakes in mature

60 L ATINFINA NCE.COM - September/October 2015

assets in developed markets, including
China Investment Corporation's purchases
of 8.68% of UK utility Thames Water and
10% of Heathrow Airport in 2012.
The 2009 agreement by China Investment Corporation to buy of 15% of US
utility and power producer AES gave the
sovereign wealth fund indirect exposure to
8 million Latin American electricity customers - and over 14,420MW of generating
capacity in Central and South America and
the Caribbean, about 40% of AES' entire
fleet.
China's other major foothold in LatAm's
power sector came when China Three
Gorges Corporation paid €2.69 billion
($3.51 billion) to buy a 21% stake in Energias
de Portugal from Portugal's government in
2011. The acquisition made Three Gorges
the largest single shareholder in EDP, which
in turn owns 51% of Novo Mercado-listed
electric utility Energias do Brasil.
Three Gorges has used this strategic
partnership with EDP to build on what
was initially an indirect exposure to Brazil. EDP's renewable energy unit, EDP
Renováveis, agreed to sell 49% of a 321MW
portfolio of wind farms in Brazil to Three
Gorges in 2014.
"Chinese investors have been active in
general, and seem to have shifted from
policy-based investing towards more
commercially-driven approaches," says
Bosworth Monck, head of client relations at
the International Finance Corporation's Asset Management Company in Washington
DC. "They remain very interested in Latin
America, but are trying to promote stronger trade ties."
The acquisitions serve China's strategic
goals of gaining exposure to renewable
technologies, electricity markets, and operational expertise. They also allow China
to create national champions that can

http://www.LATINFINANCE.COM

Table of Contents for the Digital Edition of LatinFinance - September/October 2015