X-ray of China’s infrastructure transactional activity in Latin America

China’s M&A activity in Latin America accelerated in 2020 amid the COVID-19 crisis, the Center for Global Development Policy at Boston University said in a report.

M & As reached US $ 7 billion last year compared to US $ 4.3bn in 2019. Electric power infrastructure accounted for US $ 6.8bn of the total.

“While several of these large deals involved Western investors who sold their assets in Latin America and the Caribbean, they were all first announced in the fall of 2019, so they are not symptoms of panic related to COVID-19 among multinational corporations, “the report said. “Most of these agreements involve sales from the US Sempra Energy, which announced in 2019 the intention to sell its South American assets to focus on its local North American market,” he adds.

The signed deals include the purchase by China Three Gorges of Sempra’s 83.6% stake in Peruvian power company Luz del Sur for US $ 4.1bn.

A new deal was announced late last year but is still pending: the US $ 5bn sale of Chilean power company CGE by Spain’s Naturgy to China’s State Grid. Some Chilean legislators have expressed concern about the acquisition of strategic assets by firms from other countries.

Against this backdrop of recovery in M&A activity, announcements of all-new foreign direct investment fell sharply, the report said.

“Infrastructure continues to dominate both types of investment deals, particularly in the power sector,” he says.

Latin America-China relations expert Margaret Myers told BNamericas that the Asian giant would take a strategic approach to regional investment.

Chinese mergers and acquisitions in Latin America by year (Source: Center for Global Development Policy with data from Dealogic)

2015
Total mergers and acquisitions: US $ 4.7bn
Infraestructura: US$4.400mn

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2016:
Total mergers and acquisitions: US $ 3.8bn
Infrastructure: US $ 1.3 billion

2017
Total mergers and acquisitions: US $ 17.5bn
Infraestructura: US$14.500mn

2018
Total mergers and acquisitions: US $ 9.8bn
Infraestructura: US$4.700mn

2019
Total mergers and acquisitions: US $ 4.3bn
Infraestructura: US$2.400mn

2020
Total mergers and acquisitions: US $ 7bn
Infraestructura: US$6.800mn

On the development finance front, major players China Development Bank and China Exim Bank did not sign new financial commitments with Latin American governments last year. The center and the US think tank Inter-American Dialogue monitor finances between China and Latin America.

Loans from these two banks have been on a downward trend since 2015. China has traditionally lent to Ecuador, Venezuela and Argentina, all currently mired in an economic depression.

PANORAMA

In terms of general agreements in Latin America, the number of transactions contracted 28.8% year-on-year in January to 121, according to data from research firm Transactional Track Record. But reported value added rose 177% to US $ 11.3bn, driven by private equity deals (US $ 5.48bn) and asset acquisitions (US $ 4.03bn). A large part, in value, corresponded to Brazil, which registered a growth of 372%. The prospects for deals in Latin America this year depend in part on the success of the vaccine deployment programs, according to information gathered by BNamericas.

Meanwhile, according to the bulletin, official Chinese funding to Latin American governments is expected to rebound this year, with funding from Chinese COVID-19 vaccines being a likely factor.

Investment could also be recovered in 2021, the Boston University center said, citing as an example a US $ 30bn package of investment plans covering 15 infrastructure and energy projects in Argentina. “Several of the projects associated with this package have been frequent characteristics of Chinese cooperation in the past, including the San Martín, Roca and Belgrano Cargas railway lines. In the coming months these projects may once again gain prominence,” he said.

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